Soaring material costs hikes EV prices in China
- Over 20 EV automakers in China have hiked up prices this year alone due to the soaring costs of raw materials used in batteries.
- Prices of two key raw battery materials, nickel and lithium, have been steadily rising, thus leading to a more expensive EV.
- While some predict it will take a few months for material cost to normalize, skeptics reckon it may even drag up to two to three years.
When the global automotive industry simultaneously decided to electrify their fleets in an effort to decarbonize the planet, the bet was made on a single most promising premise – that electric vehicle (EV) batteries would go on getting cheaper. Unfortunately, that has not been the case for EV makers around the world recently, especially China, as prices of key raw materials for battery manufacturing have been peaking.
Looking back, the industry’s prediction has actually been right for years — in 2010, when electric cars were first introduced to the market, their batteries cost about US$1,000 per kilowatt-hour (kWh). Since then, lithium-ion battery prices have decreased by 87% to US$156/kWh over the past decade, according to Bloomberg New Energy Finance (BENF).
To top it off, BNEF predicted that prices would plunge to as low as US$73/kWh by 2030. Alas, odds stacked against most automakers when demand skyrocketed as economies around the world reopens following a lengthened pandemic lockdown. Making matters worse was Russia’s invasion of Ukraine, driving up the prices of battery materials, such as nickel and lithium.
For that, Tesla and other EV makers were left with little to no choice but to raise prices of EVs. Take the world’s largest automobile market for instance — dozens of EV manufacturers operating in China have been forced to raise prices this year to keep up with the soaring costs of raw materials used in batteries.
From a battery producer point of view, even the world’s top auto battery maker, China’s Contemporary Amperex Technology (CATL) , has raised prices twice since mid-2021, Nikkei Asia report shows. Based on Chinese media reports, those hikes could translate to a price increase of roughly 20,000 yuan (US$3,140) per EV.
It is estimated that till date, more than 20 automakers in China have bumped up prices on their EVs this year alone. Li Auto, a major Chinese EV maker, hiked the price of its Li One sport utility vehicle last week to 349,800 yuan (US$54,950), up 11,800 yuan (US$1,855). Another major EV manufacturer BYD also raised prices on its flagship Dynasty series twice — in February and March.
Even General Motors-backed SAIC-GM-Wuling Automobile that is known for selling bare-bones EVs at cut-rate prices has pushed up its low-priced 28,800 yuan Hongguang Mini by 10%. The joint venture also went on increasing the prices for multiple models on March 24, Nikkei had learned.
Tesla Inc was also not spared from the price hike conundrum. The EV giant that makes the Model 3 and Model Y in Shanghai has increased the price for both models a few times since the end of last year. “Tesla & SpaceX are seeing significant recent inflation pressure in raw materials & logistics,” CEO Elon Musk tweeted on March 13. The US EV maker raised prices on all models by 4-10% in the US in mid-March, and also lifted prices in other markets, including Japan.
What drives the cost of EV batteries?
For all the headlines it has made, it is almost commonly known that the battery accounts for roughly one-third of an EV manufacturing cost. In short, any rise in material costs could directly affect prices. It is the rising prices for nickel and lithium, two key raw battery materials, that are responsible for the upward trajectory.
In China alone, lithium carbonate traded above 500,000 yuan per ton at one point in early March, according to a Chinese research firm, about six times more than a year earlier. Nickel prices also continued to soar in March. Because Russia accounts for roughly 10% of nickel production, and supplies 20% of the high-purity variety used for auto batteries, the war only worsened the situation.
To top it off, the increase in EV sales since 2021 have directly pushed up demand for resources. This year alone, as of early April, more than 1.14 million new passenger plug-in electric cars have been registered globally, compared to almost 6.5 million in the twelve months of 2021. In China alone, the first two months of the year, new energy vehicles sales were up 153.2% year-on-year, according to the China Passenger Car Association.
Analysts even anticipate demand to remain strong. Therefore, according to the International Energy Agency, the amount of resources required for EVs, including copper for the electrical wiring, has reached six times that of conventional gasoline-powered vehicles. In a recent white paper, IHS Markit predicted that surging raw material prices would put further EV battery price declines on hold until 2024.
That analysis predicted that average 2022 EV battery prices will be 5% higher than in 2021, mostly due to increased auto-industry demand for lithium iron phosphate (LFP) batteries. To IHS, while Russia’s invasion of Ukraine may have accelerated raw material price hikes, battery prices increases were already anticipated.
- Nvidia’s CEO, Jensen Huang: AI will take over coding, making learning optional
- Chinese cloud companies in pricing war as Alibaba slashes prices
- Samsung introduces a groundbreaking microSD card for enhanced AI capabilities
- AWS strikes AI collaboration deals with Malaysian telcos at MWC 2024
- Retrieval augmented generative AI in backup and recovery