Will Rising Battery Prices Create a Barrier to Entry for EVs?

Battery prices are one of the main reasons why the price of electric vehicles is still not on par with their gas-powered counterparts. With their higher costs, EVs are still out of reach for most buyers. Over the last decade battery prices have continued to decline, allowing the overall price of EVs to decrease as well, but that trend might be over.

In 2010, the prices were over $1,000 per kilowatt hour, which then dropped to a low $132 per kilowatt hour in 2021. But according to BlooombergNEF’s annual lithium-ion battery price survey, the average price has increased by 7% this year. This is the first time there’s been an increase in the history of the survey.

Why are battery prices increasing? One of the reasons is the rising costs of materials, like cobalt, lithium, and nickel.

“Raw material and component price increases have been the biggest contributors to the higher cell prices observed in 2022," said Evelina Stoikou, an energy storage associate at BNEF and lead author of the report. "Amidst these price increases for battery metals, large battery manufacturers and automakers have turned to more aggressive strategies to hedge against volatility, including direct investments in mining and refining projects.”

The price of nickel has increased 75% and cobalt prices are more than double what they were in 2020. Lithium prices have also seen a significant increase over the last year, hitting record highs earlier this year.

“Lithium prices remain high due to persistent supply chain constraints and the slow ramp-up in new production capacity," said Kwasi Ampofo, head of metals and mining at BloombergNEF. "Additional lithium supply could ease the pressure on prices in 2024, while geopolitics and trade tension remain the biggest uncertainties for other key battery metal prices in the short term. Resolving these tensions could help calm prices in 2023 and beyond.”

But there is one positive: the overall battery costs would be even higher if it wasn’t for the shift to lower-cost lithium iron phosphate batteries, which do not contain cobalt or nickel. The use of LFP batteries has increased over the last few years and BloombergNEF expects them to account for about 40% of the market share this year.

While the cost of materials is one of the reasons why battery prices are increasing, the other big reason is the increased demand for batteries. The demand for batteries doubled in 2022, largely due to the increase in the number of electric vehicles on the market.

Battery prices have increased overall, but the prices do differ in select markets. China has the cheapest price at $127 per kWh, but in the U.S. the prices are 24% higher and Europe is even higher at 33%.

It’s been an expectation that once the cost drops below $100 per kWh, EVs will hit price parity with internal combustion vehicles. If battery prices continue to increase, BloombergNEF predicts that the prices won’t fall below that level until 2026, two years later than originally predicted.

Should this trend continue, it means the prices of EVs will continue to rise or at least continue to be higher than conventional cars. The downstream effects will be lower adoption from budget-conscious buyers, which won’t be able to afford an EV.

With nearly every automaker announcing plans to only offer electric vehicles later this decade, the demand for batteries and materials is only going to increase. To combat the price increases, automakers and battery producers need to invest more in new battery technologies, like solid-state batteries, and improve the manufacturing processes.

While adopting electric cars is far from the silver bullet to tackle climate change, not everyone can live a car-free life. For those individuals, having an affordable electric alternative is essential and increasing battery prices may pose a threat.