Is the EV battery crisis the next ‘semiconductor chip shortage’?
- As governments set deadlines to phase out combustion-engine cars and battery prices plunge, global automakers are rapidly adding electric vehicle production
- Prices of core raw materials for EV batteries such as lithium and cobalt are on the rise, putting upward pressure on EV prices
When the present semiconductor shortage subsides, automakers will be faced with the next big dilemma — a major supply bottleneck looming in electric vehicle (EV) batteries. The situation is foreseeable for many, as rising demand for EVs and challenges in securing raw materials have slowly been building to an EV battery supply crunch, hitting especially hard for an industry already grappling with a chip crisis.
Looking into the 2021 New Energy Outlook report by BloombergNEF, it was predicted that the demand for lithium-ion batteries for both transportation and energy storage will surge to as much as 5.9 terawatt-hours a year leading to 2030, putting further strain on supply chains. That is not all: EV and battery experts reckon that with lithium materials possibly facing a deficit in the next two to three years, the cost of an electric car (the big hope in making urban transportation greener) could be impacted significantly since batteries smake up a large part of the cost.
On January 12 of this year alone, the price of nickel — another critical component in the production of EV batteries — hit the highest price seen in a decade, jumping as much as 4.4% to US$22,745 a tonne, the highest since August 2011. The price spike reflects a broader boom within the commodities market whereby stockpiles of critical metals have been dropping, while there a steady rise in EV production has been recorded amongst manufacturers.
In fact, according to BNEF, all key battery metals have seen price surges over the past two years, with lithium carbonate costs in China more than doubling. Gains in cobalt sulfate prices indicate a bottleneck in the production of that material.
And the availability of sufficient lithium products, copper foil, and some cathode materials could put pressure on the EV battery sector’s efforts to keep pace with demand. All these together can pose a problem for countries moving to increase the use of electric vehicles in attempts to decarbonize the transport sector.
What makes an EV battery so expensive?
For starters, as Bloomberg puts it, an EV uses the same rechargeable lithium-ion batteries that are in your laptop or mobile phone, except they’re much bigger. To be precise, EV battery packs are more expensive to produce than internal combustion engines (ICE), and these costs are usually passed down to the consumer. Unfortunately, the price difference remains one of the biggest barriers to EV ownership.
That said, auto giants over the last few years have been finding new savings on battery technology without compromising on safety, since components are the most critical part of the batteries that make up a major portion of an electric ride’s cost.
In a typical EV battery, the priciest component in each battery cell is the cathode, one of the two electrodes that store and release electricity. The materials needed in cathodes to pack in more energy are often expensive because they are composed of valuable metals including cobalt, nickel, lithium, and manganese. Those need to be mined and processed into high-purity chemical compounds.
Looking back, however, no doubt, battery pack prices have come down a lot — 89% over the past decade, according to BloombergNEF. However, at current rates and pack sizes, the average battery cost for a typical EV works out to about US$6,300, though the ones that go into premium models cost more.
Electric car battery pack prices fell 89% in just 10 years https://t.co/MEr6CwVPZw
— Roadshow (@roadshow) December 17, 2020
But battery costs aren’t expected to keep falling as quickly, and making matters worse is the rising raw materials prices. The BNEF forecast is a little more optimistic, with lithium-ion packs on track to drop to US$92 per kWh by 2024, and US$58 per kWh by 2030.
What can drive an EV battery price dip?
Road & Track has reported that driving the price drop is the different battery chemistries that eliminate or reduce the use of expensive (and problematic) materials like cobalt. Plus, manufacturers like Toyota have been working on new kinds of electric car batteries, such as solid-state ones, which have lower-cost designs.
Battery packs that cost $100 per kilowatt-hour could speed up the end of the combustion engine https://t.co/ImAkgjbFuB
— Bloomberg (@business) September 22, 2020
As both EV production and sales volumes grow, costs come down just as with ICE cars, and the US$100/kWh cost is often considered the turning point for affordable EV ownership, as Reuters explains. Once batteries become cheaper to make, EV prices will start becoming virtually identical to ICE vehicle prices. And as some experts put it, with any tax credits left, EVs may be even cheaper than their ICE counterparts in the long run.
What will EV battery pricing be like in the near future?
Within the first week of the year, prices for battery-grade lithium carbonate in China jumped to a record high of 261,500 yuan (approx. US$41,060) per tonne, more than five times higher than last January. Other commodities used in cathodes such as cobalt have also been rising.
The price of cobalt doubled since last January to US$70,208 a tonne, while nickel jumped 15% year on year. S&P Global Market Intelligence forecasts that lithium supply is expected to jump to 636,000 tonnes of lithium carbonate equivalent in 2022, up from an estimated 497,000 in 2021. Demand is expected to jump even higher to 641,000 tonnes, from an estimated 504,000.
Separately, Fitch in a recent report said, “Lithium supply will face a number of vulnerabilities, including geographical concentration at both the mining and refining level, as well as the limited presence of established and large mining players.”
How automakers are fighting this
Energy research and consulting firm Wood Mackenzie estimates that electric vehicles will make up 18% of new car sales by 2030. That would increase the demand for batteries by about 8x as much as factories can currently produce. The upside is, carmakers are in an intense race to acquire the right recipe that will deliver the most energy, at the lowest price, and in the smallest package.
Currently, battery manufacturing is mainly dominated by companies like Tesla, Panasonic, LG Chem, BYD China, and SK Innovation — mostly based in China, Japan, or South Korea. Since last year, however, many new players have been getting into the game. Interestingly, the pandemic has triggered a rush of collaboration between battery producers and automakers like Toyota and Panasonic Corp., Volkswagen and Northvolt, General Motors Co. (GM) and LG Energy Solution, as well as Ford Motor Co. and SK Innovation.
18 August 2022
18 August 2022