According to studies conducted by various bodies, the price of lithium, which is the critical element used in EV battery production, would likely decline this year.
In its Resources and Energy Quarterly, the Australian Office of the Chief Economist (AOCE) predicted that as the market moves into a phase of excess supply, lithium prices will probably fall this year and BloombergNEF’s annual battery price survey predicts the price of the Lithium-Ion battery will also likely to reduce.
Price Slash For Raw Material
Unlike the rise in the price of Lithium raw materials through the last few years, in 2025 it is expected that the spot price of concentrated ore(spodumene) will drop to $2,200. According to AOCE, the average spot price of lithium hydroxide is expected to drop to about $30,000 per tonne by 2025. As of now, the price of lithium carbonate is down 80% year over year at a three-year low of 95,500 Chinese yuan per tonne ($13,446).
The Australian Office of the Chief Economist (AOCE) forecasts that lithium product prices will likely decline as the market enters a time of surplus supply.
Cutting Down The Production
The price for Lithium dropped sharply in 2023 as the market went from being in deficit to having a surplus. According to the AOCE, the high prices in 2021 and 2022 supercharged more investment in lithium production, resulting in supply outpacing demand.
Essentially, the manufacturing capacity and the efficiency of production processes increased and resulted in accumulating excess inventory for Lithium.
Since the demand was less than the supply, the manufacturers faced difficulty in finding a market for their product and eventually a financial crisis thus decided to cut down the production. For example, Greenbushes in Australia, which is the largest lithium mine in the world, reported storing excess production and hinted at the possibility of future output reductions if weakening prices and demand continue.
Even though the industry is struggling, in AOCE’s opinion the majority of manufacturers are still profitable at the present rates.
The warning
Global financial services company UBS reported that US EV battery sales had reached a peak as well, which limited lithium pricing while stockpiles persisted. It predicts that the next lithium shortage won’t occur until 2028, which is a complete reversal of events from November 2022, when fears of ongoing shortages drove lithium prices to 600,000 CNY ($84,490).
It also points out that the global carbonate equivalent supply may jump by 40% in 2024 as a result of previous investments in increasing supply and accumulating surplus.
AOCE stated that there is an abnormally high level of uncertainty regarding the risks associated with the price projections. As per AOCE, the lithium sector has seen a significant structural shift in recent years due to the sharp rise in demand for EVs and the introduction of new companies into the industry.
Even though the price is lower at the moment, the companies in the lithium sector are optimistic about the significant comeback of the vital battery metal.
What Caused The Price Drop
Many believe that EV battery makers are facing low demand for lithium due to pessimism over EV sales in China. As a result, factories are not replenishing their Lithium supply.
To add to that, even though the global sales of both EVs and plug-in hybrid vehicles increased by 31% in 2023, this rise was far less than the 60% seen in 2022 according to market research firm Rho Motion.
Recent Updates On The BatteryPrice
This year battery prices are declining once more after seeing unheard-of price spikes in 2022. According to research organisation BloombergNEF, the cost of lithium-ion battery packs has decreased by 14% to a historic low of $139/kWh.
This was caused by lower prices for raw materials and components as production capacity expanded throughout the battery supply network, even though predictions for demand growth were not fully met.
According to the report, battery demand for stationary energy storage and electric cars is still expected to increase at an impressive rate of 53% annually and in terms of capacity, it is expected to reach 950 gigawatt-hours.
Major battery manufacturers reported reduced plant utilisation rates despite this development, and many companies’ projections for revenue and demand were not met last year.
Slashing Production Of EV Batteries
A lot of EV battery manufacturers revisited their production goals, which affected battery costs as the demand was low. After peaking at the end of 2022, worries that lithium prices would stay high have mostly abated, and prices are already beginning to decline once more.
Energy specialists observe that, over the last few years the breakthrough in battery technology and innovation have been the primary drivers of declining battery pricing.
However this year the dynamic has shifted as this year’s price decline was ascribed to both lower-than-anticipated demand and a notable increase in manufacturing capacity throughout the value chain of Lithium-ion batteries.
Improved Design Helps In Reducing Price
In 2023, the average price of battery EV battery packs was $128 per kWh based on volume. The average costs for EV batteries at the cell level were just $89/kWh. This shows that, on average, 78% of the pack price is made up of cells.
The conventional 70:30 split has been replaced with a higher cell-to-pack cost ratio throughout the past four years. Changes in pack design such as the use of cell-to-pack techniques have assisted in the cost reduction of batteries.
China has the lowest average battery pack pricing regionally, at $126/kWh. The difference between packs in the US and Europe was 11% and 20%, respectively.
Higher manufacturing costs, lesser volumes, the wide range of applications, and the relative immaturity of these sectors are all reflected in the pricing difference.
Compared to the US and Europe, the Chinese have an upper hand in Lithium-Ion battery production and the price of Lithium-Ion batteries in the Chinese market will be cheaper compared to other parts of the world.
This year, as battery makers increased their production capacity in an attempt to capture a portion of the expanding battery market, there was also fierce pricing rivalry inside China and that too reflected in the price drop of Lithium-ion batteries.
Conclusion
Both the reduction in the price of Lithium ore and Lithium-ion batteries is good news for the EV industry. Even though the reduction in price for EV batteries is slightly attributed to the lower anticipated demand of EVs especially in the Chinese market the main cause for the price slash is the increased capacity of lithium ore processing and the increased competition.
These two will help the price to be kept moderately. Also, another point to be noted is the price slash of Lithium is considered temporary.
Thus the industry keeps testing lithium iron phosphate (LFP) which is a low-cost alternative to Lithium-ion. At $130/kWh and $95/kWh respectively, lithium iron phosphate battery packs and cells have the lowest weighted average costs throughout the globe. According to BNEF’s study, LFP average cell prices also dropped below $100/kWh for the first time this year.
All these developments in battery technology, increased production capacity, discoveries of new alternatives and a stable supply chain will help in reducing the overall price of the EVs and will help the EVs to achieve price parity with the IC engine vehicles.
