| Affordability remains a key topic in the electric vehicle sector, and decreasing battery metal prices may be helping buyers Source: Witthaya Prasongsin/Moment via Getty Images. |
Crashing lithium and nickel prices helped push down electric vehicle prices in 2023, a trend that is expected to continue in 2024.
Automakers scrambled to secure supply agreements before 2023 as fears of a shortage of key raw materials launched prices upward. However, a slowing Chinese economy and accelerated production in the mining industry created surpluses in certain essential metals and a subsequent decline in raw materials pricing, automakers and analysts told S&P Global Commodity Insights.
The average price for an EV in the US fell to $50,798 in December 2023, decreasing 24.2% from the price peak in the second quarter of 2022, according to US Energy Information Administration data.
"Following an unprecedented increase in 2022, [battery] prices in 2023 decreased due to a drop in raw material and component prices as a result of overcapacity across the battery value chain, and lower EV demand than expected, despite still growing," Evelina Stoikou, an energy storage analyst covering battery technologies and supply chains at BloombergNEF, told Commodity Insights.
The cost of battery cells decreased about 30% in 2023 compared to a year earlier as metals used in the cathode, the most expensive part of the lithium-ion battery, recorded significant price declines, an analysis by Commodity Insights shows.
The price of battery-grade lithium carbonate ended 2023 at $13,575 per metric ton, ex-works China, as of Dec. 27, dropping 80.9% from its 2023 high and 81.4% from its 2022 high, according to S&P Global Market Intelligence data. The lithium price was $13,250/t as of Feb. 21. The London Metal Exchange cash price for nickel was $16,375/t at the end of 2023 on Dec. 29, decreasing 47.1% from its 2023 high and 66.1% from the 2022 high. The nickel price was $17,226/t as of Feb. 27.
The trickle down
The cost of a single battery cell depends on its chemical composition. Lithium-iron-phosphate (LFP) and nickel-manganese-cobalt (NMC) batteries hold the largest market share and are expected to battle it out for dominance over the next few years.
NMC batteries, which have a longer driving range and faster recharge times than iron-based batteries, had a 51% share of the automotive market in 2022. That number is expected to drop to 42% in 2030, with LFP batteries growing to about 41% from 38% during the same period, forecasts from Commodity Insights show. The developing nickel-manganese-cobalt-aluminum oxide battery, which uses less cobalt, is predicted to increase its market share to 8% from 4%.
The cost efficiency of the LFP battery was further highlighted in 2023 as decreased material prices brought down the cost by $28.6 per kWh to $67/kWh per battery cell made in China, according to a Commodity Insights report released in January. The cost of NMC-811 batteries declined by $31.3/kWh in 2023, but they were still more costly than LFPs at $88.1/kWh.
"Prices of battery metals still have a considerable impact on the overall cost of a battery, with cathode costs making up over 60% of total cell cost," Aran Waid, a senior analyst at Benchmark Minerals, said in an interview.
Not just raw materials
Battery metal prices matter for the cost of the overall battery pack, but each battery manufacturer holds its own contract with raw material suppliers.
"Manufacturers typically have long-term contracts with the suppliers, so it will probably take some time before these changes are reflected in the price of EVs," said Shabbir Ahmed, a senior chemical engineer at Argonne National Laboratory.
Along with contract terms, battery pack costs are also affected by factors such as production efficiency and ongoing innovation.
"Electrolyte materials and separator costs saw significant price drops over the past nine months, and battery factory ramping has also contributed to cell price decreases," Ben Campbell, research manager for the Battery Next team at utility consulting firm E Source, said in an interview.
"The more battery manufacturers reduce their cost of manufacturing through scale and process improvements, the more sensitive their batteries will be to changes in battery material prices," Campbell added.
If EV-makers were to pass down total cost savings on battery packs to EV buyers, the price discount would be substantial, analysts said.
With the 2023 price decline of lithium, the overall price of an EV with a 60-kWh battery pack could decrease by about $1,300, "and with the current prices, if they get sustained, we have another $800 drop basically from last year," Ali Adim, a senior research analyst for supply chain and technology at S&P Global Mobility, said in an interview.
A price drop influenced by nickel can also be calculated, though prices in 2022 were influenced by a short squeeze in the market, Adim added.
EV-makers make final call
Carmakers agree that falling prices have helped drive down the costs of EVs.
A spokesperson at General Motors Co.'s Chevrolet automobile division told Commodity Insights that lower commodity prices are "one of the factors that will help us make our US EV portfolio profitable on a variable profit basis in the second half of the year. The biggest lever, however, is scaling production."
A Mercedes-Benz Group AG spokesperson said the company was seeing some "material tailwinds on raw material costs."
Efficiency and scaling, and "continuous improvement agreements with suppliers" will allow the company to reduce battery costs per kilowatt hour "by more than 30% in the next few years," the Mercedes-Benz spokesperson said.
Analysts expect battery pack costs to further decrease in 2024.
"Surplus lithium supply, decelerating EV demand, and slowing macroeconomic outlook are all putting downward pressure on cell costs in the near term," Commodity Insight analysts said in the January report.
Looking beyond to 2030, innovations in battery chemistry, cell and pack design are taking center stage, analysts said. What is not clear, however, is the effect the current low prices will have on investments in mining and refining projects that are needed to meet growing demand projections, said E Source's Campbell and Hugo Cruz, a senior analyst for automotive supply chain and technology at S&P Global Mobility.
"It's going to be a bumpy ride to 2030," Campbell said.
S&P Global Mobility is a division of S&P Global Inc.