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Battery prices are falling again

And that’s a good thing – Dan Gearino

Cheaper batteries add to the economic case for electric vehicles, even if some U.S. auto dealers are still figuring out how to sell the models.

“EV Charging Station” by Duncan Rawlinson s licensed by CC BY-NC 2.0 DEED

Optimists about the transition to clean transportation often talk about a double benefit: Electric vehicles have close to zero emissions and soon they also will be less expensive than their gasoline counterparts.

However the idea of the inevitability of cheaper EVs took some hits last year as the average price of lithium-ion batteries increased. Analysts reassured us that the price surge was due to short-term factors, and that the longterm trend of price decreases would likely resume in 2023.

They were right.

Bloomberg NEF issued its annual battery price report this week, showing a global average price of US$139 per kilowatt-hour for a lithium-ion battery pack, which is down from US$161 in 2022 and lower than any year on record.
The report predicts prices will continue to decline, reaching an average of US$113 in 2025 and US$80 in 2030.

The average would fall below US$100 for the first time in 2027. That value is important because it’s the level the auto and battery industries have long identified as the approximate point at which an electric vehicle will cost the same as an equivalent gasoline vehicle.

The reality is more complicated as pricing varies by country, vehicle style and many decisions that automakers make. But it is accurate to say that the market is quickly moving toward a point at which EVs are less expensive than equivalent gasoline vehicles.

I spoke about the report with Evelina Stoikou, an energy storage analyst for BloombergNEF and the report’s lead author. “It’s an interesting year,” she said. “Historically, battery price reductions were largely attributed to technological innovation. And this year, it’s not that this is not the case, it’s just that it’s not the biggest factor. The biggest factor that drove the price decline is dropping raw material costs.”
Lithium is among the raw materials whose costs have fallen by a lot in 2023. Another factor is that the demand for batteries has been less than some companies’ expectations, even though that appetite has grown, she said.

She is hinting at the malaise among some automakers who have said that their EV sales are growing too slowly. I wrote a few weeks ago about how General Motors and Ford plan to slow the pace of their EV ramp-up because of concerns that demand is not high enough to justify the previous plans. Tesla also has raised some financial concerns as it prepares to release the Cybertruck.

But Stoikou emphasizes the need to appreciate nuance in this market. For example, even with the headwinds described by some automakers, EV sales are on pace to meet BloombergNEF’s forecast, which called for substantial growth in 2023. (Cox Automotive has a breakdown of U.S. sales for the first nine months of this year, showing major growth.)

The problems do not relate to overall sales numbers, globally or in the U.S., but to specific automakers and their models. Some automakers are not selling certain models fast enough, leading to an oversupply on dealer lots. In other cases, price competition has harmed the profitability of some models.

One of the big challenges is that many car dealers are not committed to selling EVs. They face a loss of revenue from the shift to EVs because customers will no longer need oil changes and other basic service, which is a key component of dealer profit.
Last November 2023 a group of about 4,000 dealers sent an open letter to President Joe Biden urging him to “tap the brakes” on emissions regulations that would require that EVs comprise about two-thirds of the market by the early 2032. (The dealers represent about one-fifth of all new car franchises in the country.)

“Last year, there was a lot of hope and hype about EVs,” the letter says. “Early adopters formed an initial line and were ready to buy these vehicles as soon as we had them to sell. But that enthusiasm has stalled.”

I don’t want to dismiss the dealers’ concerns, which in many cases reflect a lack of enthusiasm for EVs in their regions. But it’s important to remember that the harm will be much greater if the U.S. slows down its transition to EVs.

Transportation is the leading source of greenhouse gas emissions in the U.S. Therefore a shift to EVs is a matter of national health and security.

The future of the U.S. as a leader in transportation manufacturing is closely tied to the transition to EVs. China leads the world in EV manufacturing and Europe is ahead of the U.S. in levels of consumer adoption. The U.S. needs to catch up, not slow down.

The BloombergNEF report covers lithium-ion batteries across multiple end uses, including transportation and stationary energy storage, among others. Stoikou and her co-authors found that the prices for various end uses are continuing to converge. For example, lithium-ion batteries used in buses and commercial vehicles used to be significantly more expensive than the batteries used in light cars and trucks, but now the differences are much smaller.

She views this convergence as a sign of the battery industry’s growth and maturation. It shows that the subcategories within the market are now large enough to benefit from economies of scale to a larger extent than before.

One of the major changes happening to battery companies is their shift to manufacturing products close to the place where the cars will be built and sold. The Inflation Reduction Act has accelerated this change with incentives to encourage battery makers to build factories in this country. As a result, companies have committed to spend tens of billions of dollars on new U.S. factories.

In the short run, the ramp-up of new battery factories will likely increase the costs of batteries from those plants compared to existing plants in Asia.

Stoikou doesn’t expect this cost disadvantage to last for long, and she notes that IRA incentives should cancel out much of the difference.

Source: Inside Climate News, 30 Nov 23.

Dan Gearino is Clean Energy Reporter, in the U.S. Midwest, National Environment Reporting Network.


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