Analysis: Soaring battery costs fail to cool electric vehicle sales

Wuling Motors Holdings

19/04/2022 06:00

By Paul Lienert and Nick Carey
    April 19 (Reuters) - Buyers around the world are lining up
to purchase electric vehicles this year even with sticker prices
surging, flipping the script on a decade and a half of
conventional auto industry wisdom that EV sales would break out
only after battery costs dropped below a threshold that was
always just over the horizon.
    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  MBGn.DE  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. 
Here's a graphic: https://tmsnrt.rs/3OjptBX
    
    ‘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 Center for
Collaborative Energy Storage Science at the U.S. 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.
    Here's a graphic: https://tmsnrt.rs/3JTsiqN
    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  051910.KS  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.”

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
As EV demand rises, battery costs go up As EV demand rises,
battery costs go up    https://tmsnrt.rs/3uCPTWh
Global BEV sales stutter upward Global BEV sales stutter upward 
  https://tmsnrt.rs/3EmSOqD
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Paul Lienert in Detroit and Nick Carey in London;
Editing by David Gregorio)
 ((Paul.Lienert@thomsonreuters.com; mobile +1 313-670-2452;))