Battery raw materials costs a key headache
Key market participants have pointed out rising prices for battery raw materials’ prices as a key concern for automotive producers, especially with the battery pack accounting for 30-40% of total costs – the single most costly component of an EV.
“Carmakers have no choice but to increase prices for their EVs. Most battery producers increased their selling prices to automakers by 20-30% in the face of rising production costs,” a cathode producer source told Fastmarkets.
The higher costs have been passed on to consumers, and this has been exacerbated by the Chinese government announcing further cuts to existing EV purchase subsidies at the end of last year.
Prominent automakers such as Tesla, BYD and Xpeng are part of this trend.
Tesla increased the price of their Model 3 and Model Y by 10,000-21,000 yuan ($1,576-3,310) on December 31, 2021, while BYD, China’s largest EV company, also raised prices of its EVs by 1,000-7,000 yuan from February 1 due to “a significant increase in raw material prices and the decline of subsidies for EV purchases.”
BYD previously said in November that it would raise the prices of its battery products due to market changes, power restrictions and rising lithium prices. The Chinese EV maker is the second-largest supplier of batteries in China after Contemporary Amperex Technology Co Ltd (CATL).
A few other domestic automakers in China also increased their sales prices for EVs in 2022 by 2,000-6,000 yuan from 2021.
Lithium – double-edged sword?
The increasing use of lithium iron phosphate (LFP) batteries by original equipment manufacturers (OEMs) in the cathode technology landscape has been both a boon and bane for lithium prices.
The lower costs of LFP batteries have caused Chinese OEMs to favor them over nickel-cobalt-manganese (NCM) batteries since 2020, especially with the latter requiring the use of cobalt and nickel, both of which see high and volatile prices.
But this has also caused China’s lithium prices to increase by more than 500% since the beginning 2021 as a result the rising demand from the EV sector and limited availability of spot units.
Fastmarkets’ price assessment for lithium carbonate, 99.5% Li2CO3 min, battery grade, spot price range exw domestic China was 350,000-370,000 yuan per tonne on January 20, up by 10,000-20,000 yuan per tonne from 330,000-360,000 yuan per tonne a week earlier, and up by 300,000-312,000 yuan per tonne, or six-fold, from 50,000-58,000 yuan per tonne on January 7, 2021.
Fastmarkets’ assessment of the lithium hydroxide monohydrate, LiOH.H2O 56.5% LiOH min, battery grade, spot price range, exw domestic China was 290,000-310,000 yuan per tonne on January 20, up by 25,000-30,000 yuan per tonne from 265,000-280,000 yuan per tonne a week earlier, and up by 249,000-264,000 yuan per tonne, or six-fold, from 41,000-46,000 yuan per tonne on January 7, 2021.
“LFP outputs started to exceed that of NCM batteries for the first time in June 2021, and after that, LFP’s market share kept rising, and I think it will keep exceeding NCM in 2022,” a second cathode maker told Fastmarkets.
But this does not mean NCM batteries are on their way out.
Market participants expect NCM batteries output in 2022 to continue growing, though at a slower pace than LFP batteries.
According to the data from China Industry Technology Innovation Strategic Alliance for Electric Vehicle (CAEV), China produced 125.4 GWh of LFP batteries in 2021, accounting for 57.1% of the total battery output. NCM battery output amounted to 93.9 GWh in 2021, representing 42.7% of the total share.
Strong demand likely to overwhelm reduced subsidies
Market participants have downplayed the effect of reduced subsidies for EV production because they expect demand for EVs to remain strong in 2022.
“Driven by the booming outlook in the EV sector, no matter how expensive the raw materials will be, it will not impact the fast-developing momentum. EV’s market share will keep increasing in the following years as China’s authorities keep supporting the industry,” the second cathode producer source said.
Sales of new energy vehicles (NEVs) climbed by nearly 160% to 3.52 million units in 2021, data from the China Association of Automobile Manufacturers (CAAM) shows.
CAAM also estimated that sales of NEVs will reach 5 million units in 2022, with year-on-year growth of around 42%.
