This year, EV demand has stayed strong even as the
average cost of lithium-ion battery cells soared to an estimated $160 per
kilowatt-hour in the first quarter from $105 last year. Costs rose due to
supply chain disruptions, sanctions on Russian metals and investor speculation. For a smaller vehicle like the Hongguang Mini, the
best-selling EV in China, the higher battery costs added almost $1,500, equal
to 30% of the sticker price. But gasoline and diesel fuel costs for internal
combustion vehicles have also skyrocketed since Russia invaded Ukraine, and
experts noted that environmental concerns also are pushing more buyers to
choose EVs despite the volatile economics. Manufacturers from Tesla to SAIC-GM-Wuling, which
makes the Hongguang Mini, have passed higher costs on to consumers with
double-digit price increases for EVs. More may be coming. Andy Palmer, chairman of Slovak EV
battery maker InoBat, says margins in the battery industry are already wafer
thin, so "rising costs will have to be passed onto carmakers." Vehicle manufacturers like Mercedes-Benz will likely
shift increases to customers if their raw material prices keep rising. "We
need to keep margins," Chief Technology Officer Markus Schaefer told
Reuters. But EV shoppers have so far not been deterred. Global
EV sales in the first quarter jumped nearly 120%, according to estimates by
EV-volumes.com. China’s Nio, Xpeng and Li Auto delivered record EV sales in
March. Tesla delivered a record 310,000 EVs in the first quarter. ‘DIFFERENT KIND OF TIPPING POINT’ “There is a different kind of tipping point that we
seem to have hit — an emotional or psychological tipping point among consumers,”
said Venkat Srinivasan, director of the Centre for Collaborative Energy Storage
Science at the US government’s Argonne National Laboratory in Chicago. He said
"more and more people" would buy EVs "notwithstanding the cost
of the battery and the vehicle." This spike in battery costs could be a blip in the
long-term trend in which technology improvements and growing production pushed
costs down for three straight decades. Industry data showed that the $105 per
kilowatt hour average cost in 2021 was down nearly 99% from over $7,500 in
1991. Experts say battery costs could stay elevated for the
next year or so, but then another big drop is probably in store as big-ticket
investments by automakers and suppliers in mining, refining and battery cell
production, and a move to diversify raw material sources, tip the balance from
shortage to surplus. "It's like a bubble -- and for that bubble to
settle down, it's going to be at least the end of 2023," said consultant
Prabhakar Patil, a former LG Chem executive. British battery company Britishvolt is due to launch
battery production at a 45-gigawatt-hour plant in northeast England in 2024.
Chief strategy officer Isobel Sheldon said the advice the company is getting
from raw materials suppliers is “don’t fix your prices now, wait for the next
12 months and fix the prices then because everything will be on a more even
keel.” “This over-securing of resources should be behind us
by then,” she said. DEMAND BEATS SUPPLY The industry has long been awaiting the battery cell
cost threshold of $100 per kilowatt-hour, as a signal EVs were reaching price
parity with fossil-fuel equivalents. But with gasoline prices soaring and
consumer preferences changing, that may no longer matter as much, analysts say. EV demand in China and other markets "is going up
faster than people thought -- faster than the supply of materials" for EV
batteries, said Stan Whittingham, a co-inventor of lithium-ion batteries and a
2019 Nobel laureate. Concern about the environment and the climate also has
motivated buyers, especially younger ones, to choose EVs over those that burn
fossil fuels, said Chris Burns, chief executive of Novonix, a Halifax-based
battery materials supplier. “Many younger people entering the market are making
buying decisions beyond simple economics and are saying they will only drive an
EV because they are better for the planet,” Burns says. “They are making the
plunge even though it would be cheaper" to drive a gas-powered car. “I don’t think we will stop seeing reports trying to
show a trend in battery prices down towards $60 or $80 a kilowatt-hour as
aspirational targets, but it is possible that those may never get met,” he
said. “However, it doesn’t mean that EV adoption will not rise.”