By Anjali Joshi
The cost of manufacturing EVs is expected to surge this year due to rising prices for key raw materials. The average price of a lithium-ion battery pack had declined nearly 90% from 2010 to 2020 as the global battery cell production increased tremendously. However, in the last few years raw materials like lithium, cobalt, and nickel have witnessed continuous price increases and sharp supply shortages due to this booming demand from the EV sector.
According to Benchmark Mineral Intelligence, since January 2020, lithium prices have surged by over 700%, cobalt by 100%, nickel by 250%, and graphite by over 25%. Out of these raw materials, lithium is the biggest concern as its supply is growing at a pace lower than the global EV battery demand.
In response to the rising price of raw materials, both cell and EV makers are making upstream integration investments in raw material production and refining and cathode/anode powder production. These investments are attempts to secure long-term supply of key raw materials. This situation today is similar to the situation in 2018, when EV makers were forced to move one step up across the battery value chain by collaborating with battery cell makers in order to bring down the price of battery cells and packs.
While battery cell makers are regularly announcing large-scale “gigafactory” expansions, capacity expansions in raw material production such as mining projects will not be enough to match the growing demand from the downstream sector, at least over the next two to three years. Rising raw material prices have prompted cell suppliers to push up prices to EV manufacturers, which are ultimately passing on costs to EV buyers. US-based EV makers like Tesla and Rivian Automotive have already raised prices of some of their EV models in early 2022 due to the high-cost pressure tied to raw material supply shortage and increasing prices.
Rising inflation, along with higher EV prices, is likely to force some customers to delay their purchase decisions, while other buyers wait for some lower price EV models to be launched in 2023. However, despite a tight supply for EV batteries and increased EV prices, Bloomberg New Energy Finance and other market analysts expect the overall demand for EVs to keep growing. According to the International Energy Agency (IEA), 2 million electric cars were sold worldwide in Q1 2022, up by three-quarters from Q1 2021.
Source: CEA Research