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One of the guiding principles of the belief that electric vehicles will take over from internal combustion is the falling cost of batteries. From a pack price of around $1,200 per kWh in 2010, the prices had dropped to $137 per kWh by 2020 and £132 per kWh in 2021. There was an expectation of costs below $100 by 2023, by which point EVs would hit price parity with equivalent internal combustion vehicles and the game would be over for oil and gas. But the global surge in lithium prices have led some to question whether this dream would really become a reality.
Lithium carbonate prices had been dropping since a peak in 2018 of around $15,000 per ton to half that price by the end of 2020, according to Edison Group. But, in large part due to the demand for EVs, the price has been growing all through 2021, hitting over $25,000 per ton by the end of last year, and now reaching over $40,000 per ton. This looks like a dire situation, because EV demand is only going up and some are now saying that production can’t scale because lithium prices will hold it back, along with surging prices of other minerals. According to Trading Economics, cobalt has gone from $30,000 in 2020 to $80,000 per ton today and nickel has surged even more, relatively speaking, from $20,000 to $80,000 per ton.
This doubling, trebling, and quadrupling of key elements in Lithium-Ion batteries sounds almost terminal for the price reductions and volume growth we have seen in the last couple of years. However, there are a few other factors to take into consideration. First, while these elements are expensive, it should be considered just how much of each one actually goes into an EV battery and the overall vehicle price.
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Just over half of the price of a typical EV battery cell comes from the minerals in the cathode, with 12% from the graphite in the anode. The popular “NMC” cathode type uses lithium, nickel, manganese, and cobalt (the latter three giving it the NMC name) for the anode. A typical high-nickel NMC design such as LG’s is “811”, referring to how it has 80% nickel, 10% manganese, and 10% cobalt. As already mentioned, the costs of nickel and cobalt have exploded alongside lithium, but manganese hasn’t increased in price to the same level. Graphite prices have also gone up a little recently, but not in the same multiples as the minerals in the cathode.
Overall, though, most of the minerals that make up about half of a lithium-ion battery cell price have gone up by orders of magnitude in cost, which could in theory mean as much as a tripling of the price per kWh of EV batteries. However, although there have been some EV cost increases, for example with Tesla increasing its UK Model 3 pricing, there hasn’t been significant inflation from other manufacturers, other than the forecourt gouging due to the universal chip shortage. If the 2021 pack price was $132 per kWh, even the 100kWh monster batteries in the most high-end luxury vehicles should only have cost around $13,000, but in reality there is a huge markup that can soften the blow to the end customer.
As Michael Liebreich of Bloomberg NEF and Liebreich Associates pointed out in a Tweet, we’ve been here before with silicon. A huge surge in silicon prices in 2008 led some to argue that solar panels would not scale, but a year later prices were back down again and then continued to fall. Solar panels are now less than a third of the price they were per Watt in 2010. The high EV battery mineral prices are also likely to be a blip. There’s nothing like a high mineral price to encourage more production as mining companies look to cash in. Lithium is being described as “white gold” and there are numerous startups looking to exploit reserves, because it’s actually fairly abundant. In the UK, there is Cornish Lithium and British Lithium, and in German Vulcan Energy is looking to explode a huge brine lake in the Upper Rhine Valley. There are numerous startups in the US looking to exploit lithium, such as Austin’s EnergyX and Bill Gates-backed Mangrove Lithium.
Technological development in battery chemistry will also play a factor. If some minerals are too expensive, battery chemistry can be changed. NMC anodes aren’t the only choice – there is also lithium titanate, lithium cobalt oxide and lithium manganese oxide. Tesla has switched to using Lithium Iron Phosphate (LFP) CATL batteries for the basic Model 3 currently on sale in Europe, something I predicted back in July 2020. I also recently reported on Theion’s radical sulfur-based battery design, which doesn’t use nickel, manganese or cobalt, but does still require lithium. Theion is not the only company researching lithium-sulfur either, because sulfur is relatively cheap and abundant, giving it considerable cost advantages.
The surge in the price of lithium and other current minerals used in EV batteries is a concern. But we’ve been here before, many times. Just as the switch to EVs is part of the solution to the problem of CO2 emissions and climate change, technological innovation will find a way forward for EV batteries, as it always has in other areas. The smooth curve in battery pricing towards electric and internal combustion vehicle price parity may have hit a speed bump, but the general direction of travel remains the same.