Analysis-Soaring battery costs fail to cool electric vehicle sales

div classBodysc17zpet90 cdBBJodivpBy Paul Lienert and Nick Careyp

pReuters – 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.pdivdivdiv classBodysc17zpet90 cdBBJodiv

pThis year, EV demand has stayed strong even as the average cost of lithiumion battery cells soared to an estimated 160 per kilowatthour in the first quarter from 105 last year. Costs rose due to supply chain disruptions, sanctions on Russian metals and investor speculation.p

pFor a smaller vehicle like the Hongguang Mini, the bestselling EV in China, the higher battery costs added almost 1,500, equal to 30 of the sticker price.p

pBut 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.p

pManufacturers from Tesla to SAICGMWuling, which makes the Hongguang Mini, have passed higher costs on to consumers with doubledigit price increases for EVs.p

pMore 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.”p

pVehicle manufacturers like MercedesBenz 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.p

pBut EV shoppers have so far not been deterred. Global EV sales in the first quarter jumped nearly 120, according to estimates by EVvolumes.com. Chinas Nio, Xpeng and Li Auto delivered record EV sales in March. Tesla delivered a record 310,000 EVs in the first quarter. p

pHeres a graphic: https:tmsnrt.rs3OjptBXp

p‘DIFFERENT KIND OF TIPPING POINT’p

p“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. governments Argonne National Laboratory in Chicago. He said “more and more people” would buy EVs “notwithstanding the cost of the battery and the vehicle.”p

pThis spike in battery costs could be a blip in the longterm 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.p

pHeres a graphic: https:tmsnrt.rs3JTsiqNp

pExperts say battery costs could stay elevated for the next year or so, but then another big drop is probably in store as bigticket 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.p

p“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 executive.p

pBritish battery company Britishvolt is due to launch battery production at a 45gigawatthour plant in northeast England in 2024. Chief strategy officer Isobel Sheldon said the advice the company is getting from raw materials suppliers is “dont fix your prices now, wait for the next 12 months and fix the prices then because everything will be on a more even keel.”p

p“This oversecuring of resources should be behind us by then,” she said. DEMAND BEATS SUPPLYp

pThe industry has long been awaiting the battery cell cost threshold of 100 per kilowatthour, as a signal EVs were reaching price parity with fossilfuel equivalents. But with gasoline prices soaring and consumer preferences changing, that may no longer matter as much, analysts say.p

pEV 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 coinventor of lithiumion batteries and a 2019 Nobel laureate. p

pConcern 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 Halifaxbased battery materials supplier.p

p“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 gaspowered car.p

p“I dont think we will stop seeing reports trying to show a trend in battery prices down towards 60 or 80 a kilowatthour as aspirational targets, but it is possible that those may never get met,” he said. “However, it doesnt mean that EV adoption will not rise.”p

p

pp Reporting by Paul Lienert in Detroit and Nick Carey in London Editing by David Gregoriop

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