Key takeaways
- Sharp rise in Li-ion battery raw material prices pushes nickel-based CAM costs up by 180-200% and LFP by 330% between May 2021 and 2022
- This has amplified the cost difference between nickel-based CAMs and LFP on a kWh basis
- Sustained high raw material prices will lead to a resurgence in interest in LFP-powered electric vehicles (EV)
Lithium supply shortage
The lithium supply deficit seen over the past year pushed lithium hydroxide and carbonate prices to record highs, up 609% and 570% respectively in the year between May 2021 and May 2022, surging well beyond the increases seen in the other battery raw materials. This led to a two-to-threefold increase in the NCA, NMC and LFP cathode active material (CAM) derived costs, as seen in Figure 1 below, and amplified the differences between them, as seen in Figure 2.
If raw material prices remain high, we will likely see renewed interest in LFP, potentially even displacing NMC532 and other CAMs, especially with innovations such as cell-to-pack integration improving the LFP pack energy density.
CAM costs on the rise
High raw material prices are eating into OEM profit margins and taking the industry away from the < 100 $/kWh battery pack. For a typical NMC811 EV battery pack, the overall cell cost was calculated to increase approximately 60% to 151 $/kWh between May 2021 and May 2022, and the overall pack cost rose 47% to 177 $/kWh.
This is not yet felt by OEMs whose contract prices lag behind spot prices, but it is a sign of things to come if prices remain elevated.
In May 2021, the CAM cost contributed 57% of the overall cell cost and 34% of the overall pack cost. A year later, this had risen to 76% and 55% respectively (assuming all non-CAM costs remained the same during this period). Before the nickel spike in March 2022, the nickel-based CAM costs were mostly comparable on a kg basis, all having been similarly affected by rises in the raw material prices. Whilst the cost of nickel-based CAMs increased by roughly 180-200%, LFP increased 330%.
Cell costs see effect of high raw material prices differently
Modelling the effect of these raw material prices on overall cell cost (materials + manufacturing) and converting to a kWh basis tells a different story, as seen in Figure 2.
In general, for the nickel-based CAMs throughout the year, the lower the material energy density, the higher the cost per kWh. This held true even through the March 2022 nickel spike, with NMC532 cells coming out the most expensive and NCA90 cells the cheapest.
Additionally, the increase in raw material prices further pushed the chemistries apart in terms of overall cell cost. In May 2021 the NCA90 cell cost was estimated to be 93 $/kWh and NMC532 100 $/kWh, a difference of 7 $/kWh. By Jan 2022, this difference had more than doubled to 16 $/kWh.
In May 2021, the intrinsic low energy density of LFP made LFP packs comparable in cost per kWh to packs with nickel-based cells, at around 97 $/kWh. Its price was then pushed up by the lithium carbonate price and the doubling of the iron phosphate price, but having no nickel or cobalt allowed it to remain immune to rises in their prices. The LFP cost mostly plateaued in early March 2022 at 131 $/kWh, around 22 $/kWh cheaper than NMC532.
Pack costs show an advantage for LFP
The cost advantage of LFP can more clearly be seen on the pack level, as shown in Figure 3. Being more thermally stable than nickel-based CAMs allows for a simpler pack design, which reduces the non-cell mass in the pack. This means that the energy density difference on the cell-level between LFP and nickel-based CAMs is reduced at the pack-level, and this difference is reduced further by innovations such as cell-to-pack integration.
NMC532 packs were estimated to cost 128 $/kWh in May of 2021, rising 47% to 181 $/kWh a year later. In contrast, LFP rose just 29% from 118 $/kWh to 152 $/kWh, making it almost 30 $/kWh cheaper in May 2022. Having zero nickel and cobalt, it is not affected by the price volatility of these metals and does not invite the ESG concerns that comes with them.
Industry implications
Over the past several years, LFP was only widely used in China, its low energy density and poor low-temperature performance inhibiting its penetration in other markets. But today its low price, availability of raw materials, better resilience to price shocks, fewer ESG concerns and safety benefits coupled with better cell-to-pack energy density efficiency has attracted increased interest, notably by Tesla and other large OEMs.
It is receiving significant research and development to mitigate its drawbacks, and studies show that it is capable of replacing NMC532, making it well-suited for entry-level and standard-range models. If raw material prices remain high, then this will likely be expedited. Improved charging infrastructure and consumer acceptance of shorter-range vehicles, especially for city dwellers, light-duty fleet operators and drivers whose primary vehicle usage is for short-duration trips will also bolster LFP adoption. Furthermore, LFP will appeal more to the ethical buyer, as it does not contain any cobalt. However, it is unlikely that premium EV models will employ LFP any time soon.
How will the supply chain respond?
We have seen a cooling off of commodity prices since May 2022, but lithium supply remains the most pressing issue. Traditional hard-rock and brine-based sources of lithium are struggling to keep up with demand, resulting in a flurry of interest in unproven, unconventional forms of extraction. Fastmarkets’ 10-year-forecast indicates lithium prices will remain volatile until 2026, before decreasing towards the region of 25 $/kg for carbonate and hydroxide, cif CJK, in 2032.
If sustainability concerns, particularly around cobalt, are not resolved, and shocks in the nickel price occur again, then this will continue fuelling the interest in LFP. Coupled with improvements on the cell-level and engineering innovations on the pack-level, this would see wider adoption of this chemistry in entry-level and mid-range models.
Read more on how to manage price volatility in the lithium market here.
CAM cost breakdown charts – May 2021 to May 2022
The following charts illustrate the individual effect of each raw material’s price rise on the cost of various CAMs between May 2021 and May 2022. The cost of NCA90 was driven to a record high as a result of the rise in price for lithium hydroxide as well as the nickel cash official spike.
NMC811 also contains a high proportion of nickel and was affected by the nickel spike in addition to the lithium hydroxide price increase.
NMC622 was pushed to record highs largely as a result of the price rise of lithium carbonate, which is preferred for low-nickel CAMs. It was also affected by the nickel spike and the increase in cobalt prices.
NMC532 also experienced record highs due to the same factors as for NMC622 but was the least affected of all the nickel-based CAMs by the nickel spike, with cobalt playing a larger role in determining its cost.
Visit our dedicated battery raw materials page to discover more insights on the factors at play in the industry in 2022 and beyond.
