The price of lithium-ion batteries rose for the first time in more than a decade this year, with surging raw material costs expected to challenge the car industry’s efforts to turn electric vehicles into a mass market product.
Soaring prices of battery metals such as lithium, cobalt and nickel and higher component costs pushed battery pack prices up to $151 per kilowatt hour, a 7 per cent rise compared with a year ago and the first increase since BloombergNEF began its annual survey in 2010.
The company expects prices to rise further to $152 per kWh next year. In 2010, prices were $1,160 per kWh on average.
The car industry has long viewed the $100 per kWh battery pack as the point at which electric cars will become competitive with combustion engine vehicles.
However, lithium prices have increased 10-fold since the start of 2021 and nickel is up 75 per cent, while cobalt prices have been more than double their 2020 average this year.
As a result, BloombergNEF forecasts that the $100 per kWh level will be reached by 2026, two years later than previously expected. This will “negatively impact the ability for automakers to produce and sell mass-market EVs in areas without subsidies”, it said.
It added that the higher costs could also be problematic for the economics of battery energy storage projects that are vital to stabilising the grid as intermittent renewable power grows.
The rise in battery pack prices would have been even higher if car companies and cell manufacturers in the Chinese market had not switched to cheaper lithium iron phosphate, LFP, batteries, which do not use cobalt and nickel but have a shorter range.
In 2022, there were 603 gigawatt hours of demand for lithium ion batteries, almost double the level of the previous year. Supply chains are struggling to keep up.
Lithium-ion battery pack prices vary significantly in different regions. In China they cost $127 per kWh on average, while in the US and Europe prices are 24 and 33 per cent higher respectively. The difference is explained by higher production costs in less developed western markets, as well as their preference for longer range batteries that use nickel and cobalt.
Evelina Stoikou, an energy storage associate at BloombergNEF, said that the rising raw material and components costs has pushed carmakers to take action to secure resources and bring costs down.
“Amidst these price increases for battery metals, large battery manufacturers and automakers have turned to more aggressive strategies to hedge against volatility, including direct investments in mining and refining projects,” she said.
There is significant uncertainty about when battery metal prices will ease. The world’s largest lithium producers have warned about the difficulties of increasing production to cope with rocketing demand while the US, Europe and other countries are making efforts to reduce their dependence on China.