Battery costs rise as demand for lithium exceeds supply

Electric car battery prices appear set to rise in 2022 after a decade of steep declines as supplies of lithium and other raw materials failed to keep pace with rising demand.

As mining companies scramble to increase production from existing facilities and develop new sources of supply, benchmark prices for lithium carbonate in 2021 ended at record levels. In China, the largest battery producer, the price was 261,500 renminbi ($41,027) per ton, five times higher than last January.

The prices of other commodities used for the cathodes, which are the most expensive part of the battery, have also gone up. The price of cobalt has doubled since last January to $70,208 a ton, while the price of nickel has jumped 15 percent to $20,045.

The increases are eroding the technology and efficiency gains made in recent years, as automakers and battery makers have worked hard together to develop long-life, high-performance batteries while trying to keep costs down. They also threaten to throw a wrench into the automaker’s ambitious plans for electrification, just as even previously reluctant companies like Toyota are adopting targets for electric cars.

According to Bloomberg NEF, global electric vehicle sales are estimated to have reached 5.6 million in 2021 from 3.1 million in 2020, thanks to rapid sales in China. More demand growth in 2022 will mean a lithium deficit this year as material use outstrips production and depletes stocks, according to a December report from S&P Global.

According to S&P Global Market Intelligence, supply is expected to jump to 636,000 tons of lithium carbonate equivalent in 2022, up from 497,000 tons in 2021 – but demand will rise to 641,000 tons, from about 504,000 tons.

Lithium prices are unlikely to collapse, as they have in previous cycles, said Gavin Montgomery, research director for battery raw materials at Wood Mackenzie. “We’re entering kind of a new era in terms of lithium pricing over the next few years because the growth is going to be very strong,” he added.

In the short term, supplies will be limited. Producers in Australia closed mines in 2020 after a period of low prices, and with the Covid-19 virus continuing, it has proven difficult to re-hire staff and bring production back to pre-pandemic levels.

Meanwhile, Chinese lithium processing companies making lithium carbonate were affected by the energy restrictions that were suddenly introduced in the fall. Despite easing some of these restrictions, companies appear to be struggling to catch up.

A worker inspects batteries at a factory in Nanjing, China

A worker inspects batteries at a factory in Nanjing, China

For cobalt, transportation disruptions caused by epidemics and border closures in Africa have been behind the price hike. The emergence of the Omicron variant of the coronavirus has added new disruptions to the main trade route from cobalt-producing Congo through the South African port of Durban to China.

A lithium dealer in Japan told Nikkei Asia that they expect prices to remain at current high levels, saying: “Based on the electric vehicle goals of the automakers, we suspect there will be an adequate supply of raw materials.” The trader added that new technologies such as all-solid-state batteries would need more lithium.

According to Bloomberg NEF, prices for lithium-ion battery packs were above $1,200 per kilowatt-hour in 2010 but have fallen to $132 by 2021. However, the company estimates that average prices could rise to $135 per kilowatt-hour in 2022. Cathode materials typically make up about 30 percent of the total cost of battery packs.

Pressure is growing to secure new supplies of raw materials as the global auto industry moves away from the combustion engine to electric vehicles. Volkswagen and BMW aim to make half of their vehicle sales electric by 2030. Ford Motor Company predicts that 40 percent of its global sales will be electric by 2030. In a surprising move, Toyota said in December that it would sell 3.5 million electric vehicles in 2030, brushing off an image that the company is wary about switching to electric cars.

Independent battery makers are racing to increase their supply sources, including the likes of China’s CATL, the world’s largest battery producer. China accounts for more than 65 percent of global battery production and more than half of the chemical lithium production, a dominance that worries many in the auto industry at a time of geopolitical tensions.

“No country can compare to China in terms of cost competitiveness,” said the Japanese lithium trader. “There are certainly geopolitical risks or Chinese risks in the supply chain.”

This article is from Nikkei Asia, a global publication with a uniquely Asian perspective on politics, economics, business and international affairs. Our reporters and outside commentators from around the world share their views on Asia, while our Asia300 section provides in-depth coverage of 300 of the largest and fastest growing listed companies from 11 economies outside Japan.

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In 2020, Tesla acquired its own rights to extract lithium from clay deposits in the US state of Nevada, an early example of an automaker working to phase out the medium. That same year, BMW signed a five-year cobalt supply agreement with Moroccan producer Managem in a deal worth $113 million.

Volkswagen signed a deal last month to supply the Vulcan Group with “carbon-free” lithium to supply battery cell factories. The German automaker announced the same month that it would establish a joint venture with Belgian materials company Umicore to build production capacity for feedstock and cathode materials in Europe.

Toyota said it had obtained sufficient supplies of battery raw materials, including lithium, to meet its needs through 2030 through a collaboration with trading company Toyota Tsusho, in which Toyota has a stake of about 20 percent.

Sanichiro Fukao, a senior fellow at the Itochu Research Institute, said that automakers view raw materials as bargaining chips in negotiations with battery makers, and that failure to secure goods would leave them no choice but to buy expensive batteries from them. In the global race to produce low-cost electric cars, that could prove fatal.

Fukau said sourcing raw materials for batteries could be a problem for many automakers as it happened last year when buying semiconductors, and it’s possible that automakers may not be able to produce electric cars in the planned numbers due to a shortage of materials.

“Whether they can secure raw materials today determines whether they can win 10 years from now,” he said.

A copy of this article First published by Nikkei Asia on January 3, 2022. Copyright © 2022 Nikkei Inc. all rights are save

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