Key takeaways

• Li-ion cell costs are at a record low, having dropped 50 – 60 % between Jan 22 and Aug 24 in China, and enabling a new era of affordable EVs.
• Between this period, the cost of Li-ion cells inside the Tesla Model 3 Base as a % of its retail price fell from 15% to 7.5%.
• The conditions in the upstream supply chain that have enabled these low cell costs are unsustainable and raw material prices are expected to rise.
• These prices now need to stabilize at levels that protect downstream OEM margins whilst incentivizing upstream supply expansion to meet future demand.

Lithium prices have fallen 86% between Jan 2023 and Aug 2024, leading to Li-ion costs falling by 50-60 %

Since 2022, battery raw material (BRM) prices have been dropping sharply amidst a market oversupply. As of August 2024, the prices of lithium carbonate (cif CJK, MB-LI-0029) and lithium hydroxide (cif CJK, MB-LI-0033) had fallen to just 14% of their January 2023 levels. Meanwhile, nickel sulfate exw China (MB-Ni-0244) saw a 30% reduction, and iron phosphate (MB-FEP-0001) declined by 53% over the same period [Fig 1].

Li-ion cell costs as a result have fallen by 50-60 % [Fig 2]. LFP prismatic cell costs in China are close to 49 $/kWh with NCM-811 prismatic cells at 60 $/kWh. In South Korea, NCM-811 cylindrical cells are 67.1 $/kWh.

Low cell costs have enabled a new era of affordable EVs

Driven mainly by these low cell costs, many passenger BEVs in China are already priced below their equivalent internal combustion engine (ICE) counterparts. As these high-quality EVs from China enter Western markets and EV adoption progresses — albeit at a slower rate than in recent times — understanding battery cost structures and how raw material prices affect cell cost is increasingly crucial for OEMs and other stakeholders to sustain the transition to electric mobility. Transparent cost breakdowns are also vital for insurance companies as they assess the complex, and often expensive, repairs associated with EVs. Table 1 summarises the EVs and battery packs discussed further in this article.

The average price of a passenger internal combustion engine (ICE) vehicle in the UK is £35,000 ($46,000), which is comparable to the price of the BYD Seal (which has been subject to trade tariffs). Furthermore, affordable BEVs (< £25,000) will soon enter Western markets, with models from Dacia, Citroen, Fiat, Renault, and Vauxhall expected to be available in the UK later this year.

Lithium accounts for just 2-3% of the cell mass, but 10-13% of the cell cost

The 4,416 individual NCM-811 cells found in just one Tesla Model 3 LR battery pack contain 7.3 kg of lithium (requiring 44.2 kg of lithium hydroxide), 50.3 kg of nickel, 6.5 kg of cobalt, and 6 kg of manganese, while the Model 3 Base RWD pack contains 6.4 kg of lithium (33.8 kg of lithium carbonate) and 44.4 kg of iron in its LFP cells. For the BYD Seal and Atto 3, the Seal pack requires 8.8 kg of lithium (46.7 kg of lithium carbonate) and 62.1 kg of iron, whereas the Atto 3 needs 6.5 kg of lithium (34.5 kg of lithium carbonate) and 45.8 kg of iron. These quantities refer solely to the cells.

In all the packs, the mass of natural graphite is the heaviest component, with 131.8 kg needed for the BYD Seal pack. Another significant observation is the difference in electrolyte required between the Tesla Model 3 LR pack (25.4 kg) compared to the other packs (78 kg for the similarly sized Seal pack).

Discussions on developing Western supply chains often focus on AAM and CAM production and overlook the need to develop separators, electrolytes, and current collectors, which are also needed in large quantities. For example, the 60 kWh pack found in the Tesla Model 3 Base requires 10.9 kg of separator, 70.8 kg of electrolyte, 16.6 kg of copper foil, and 11.2 kg of aluminium foil. Fig 3 looks at the costs associated with all the materials found in each EV, in $/pack.

LFP cells produced in China are 25% cheaper than NCM-811 cells produced in South Korea

The two LFP cells, produced in China, have a comparable cost of just under 50 $/kWh, while the LG NCM-811 cell, manufactured in South Korea, costs 67.1 $/kWh. This difference is due to LFP’s lower material costs and cheaper manufacturing costs in China. Despite lithium’s relatively low price, it represents a disproportionately high proportion of cell cost, accounting for 10-13% of the total cost despite making up only 2-3% of the cell mass in all three cells. 21-24% of the overall cell cost in all three cells is attributed to manufacturing. CAM production costs account for 12.6% of the LG NCM-811 cell’s cost, compared to around 5% for the LFP cells. The remaining costs are associated with the materials for the cells.

The estimated value of the NCM-811 cells in the Tesla Model 3 LR battery pack is $5,243 as of August 2024. In comparison, the LFP battery packs, whilst offering less range per kWh, are significantly cheaper. The costs are $2,925 for the Model 3 Base, $4,174 for the BYD Seal, and $3,081 for the BYD Atto 3. When considering range, this translates to $10/km for the Model 3 LR, and $7, $8.7, and $9.3/km for the Model 3 Base, BYD Seal, and BYD Atto 3 respectively.

The cost of the cells in the Tesla Model 3 Base model in August 2024 was 7.5% of the price of the EV, down from 15% at the start of 2023.

Fig 4 presents the price of the Tesla Model 3 in the USA and how the value of its cells as a % of its retail price have changed since Jan 2023. Before its sales recently ended, the LFP cells accounted for roughly 7.5 % of its price, down from 15% at the start of 2023, and improving the profitability of the vehicle.

This is a promising sign that EV OEMs can now enjoy increased profitability and further invest in improving EV technology, aiding the transition to a greener future. However, the conditions that enabled such low cell costs are unsustainable, with many upstream stakeholders struggling to stay afloat financially and expand their operations amidst thinning margins.

Summary

Falling raw material prices and other economic factors have driven cell costs to historic lows. However, this current landscape is unsustainable, as many upstream miners, refiners, and pCAM/CAM producers are struggling to maintain or scale operations. While raw material prices are expected to rise, they must stabilize at levels that support downstream OEM profitability whilst incentivizing sufficient upstream supply to meet demand. Ensuring stable prices is critical for long-term, sustainable growth in the EV sector.

To promote widespread EV adoption, vehicle prices must continue to decline. To offset potential EV price increases due to rising cell costs, OEMs can focus on producing cells with higher energy density, improved safety, and longer lifespans. Optimizing battery pack designs and enhancing EV powertrain efficiency will also help in keeping EVs affordable support the continued expansion of electric mobility.

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For more information on cell costs, fill in the form below for the free sample of the Fastmarkets Battery Cost Index, which tracks the cost structure of various cells on the market, including those produced by CATL, BYD, LG, and SDI.

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The Fastmarkets Battery Cost Index (BCI) addresses this as a monthly modelled-cost tracker for various NCM and LFP cells across different countries. With this forecasting and analysis, EV battery and automakers can dive into the key material cost drivers, such as lithium, nickel, cobalt, synthetic and natural graphite, electrolyte and separator, as well as the manufacturing OPEX of CAM and cell production at a scale of 1 GWh/yr.

How does the Battery Cost Index work?

The bill of materials of different Li-ion cells on the market is first assessed and the material intensities are averaged for each chemistry and converted to $/kWh. These values are updated, accounting for yield losses in CAM and cell production, which are then combined with Fastmarkets material spot pricing and external data to calculate material costs. The CAM plant and cell gigafactory sub-models estimate manufacturing costs considering local economic factors such as labour and utility rates, and land, construction and maintenance costs. 

Battery Cost Index preview

Examples from the November edition can be found below. Figure 1 presents a historical view of cell costs for China from January 2022 to October 2023. Figure 2 looks at current NCM-811 cell costs across different countries.

Cell costs in China have fallen drastically since peaking in March of 2022, driven by the fall in raw material prices. Lithium hydroxide and lithium carbonate are at present close to price parity. As a result, LFP is currently just 4% lower in cell cost than NCM-811, at 79.2 $/kWh compared to 82.7 $/kWh respectively.  

The should-cost of producing NCM-811 cells at 1 GWh/yr in different countries is presented here. In the model, the raw materials are shipped from China and both CAM and cell are produced locally. The NCM-811 cell cost in the USA is 114 $/kWh, comparable to Germany at 110 $/kWh, and 35% higher than that of China at 85 $/kWh.

Tesla 4680 cell cost breakdown

For a more focused analysis rather than an average cost for a specific chemistry, the BCI can also be tailored to your specific cell design or manufacturing requirements. We have provided an example of how the BCI has been tailored for the Tesla 4680 cell (pre-pilot line sample) for a production rate of 1 GWh/yr. The Tesla 4680 cell Bill of Materials is obtained from the teardown and chemical analysis report generated by About:Energy. The modelled cost breakdown of the cell is provided, revealing material and manufacturing costs for the USA, Germany and China. For a more detailed demo of the modelling methodology, please get in touch.

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Follow this link below and submit your details to access this free report. For further information on the Fastmarkets Battery Cost Index, or the Tesla 4680 cell report including generating data with a different set of manufacturing parameters and/or for another cell, please contact us.

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Key highlights:

• Insights into the cost of each battery material across various regions
• An in-depth look at regional variations in battery costs
• Battery material supply constraints and the impact on raw material costs
• Whether smaller battery packs are the solution to the battery raw material supply crunch

Transparent breakdown of lithium-ion cell costs required to make informed decisions

The Fastmarkets NewGen Battery Cost Index tracks and offers key insights into the cost of cathode active materials (CAM), anode materials and chemistries across different regions. The index is based on a cost model that accounts for monthly average spot market prices for raw materials and other cell components, gigafactory processes and production rates (gigawatt hours per year), yield losses, as well as local economic factors such as energy, labor and other operational costs.

Understanding regional variations in battery cost

Figure 1 presents the estimated cost for nickel manganese cobalt (NCM) 811 cells for a 10 gigawatt-hour per year production rate across four different countries.

Figure 1

In the first quarter of 2023, NCM 811 cell costs in China were estimated to be 101 dollars per kilowatt hour (kWh) and 110 dollars per kWh for South Korea. For Germany and the USA, these estimates were 120 dollars per kWh and 115 dollars per kWh respectively. Europe and Germany command a higher cost due to higher labor, energy and operational costs. Lithium accounts for on average 34% of the total cell cost, with the CAM accounting for 58%. The anode makes up 8% of the total cell cost. All cell manufacturing processes account for 24%.

Constrained supply of raw materials risks pushing cell costs higher

Figure 2 presents the cost of today’s NCM811 and lithium iron phosphate (LFP) cells over the years ahead, based on the Fastmarkets NewGen long-term forecasts for lithium, nickel, cobalt and graphite.

Figure 2a and 2b

Each of the three scenarios – base, high, and low – is based on raw material supplies coming online at different rates, which is broken down further in the Fastmarkets NewGen long-term forecast reports. The dashed lines are the cell cost targets which will enable pack costs to reach 100 dollars per kWh. For NCM 811, this target is estimated to be 78 dollars per kWh and is expected to be reached in 2027 at the earliest.

LFP is more thermally stable than NCM 811, which greatly simplifies pack design. Therefore, its cell cost target is higher, at 83 dollars per kWh and is expected to be reached by 2025. These figures here are global weighted averages, considering local battery demand in key markets (i.e. China will reach these milestones sooner).

Cell costs will initially continue coming down. NCM 811 and LFP both have the potential to reach below 70 dollars per kWh on the cell-level by 2029. However, beyond this point, there is a risk of constrained supply pushing costs back up. To mitigate this, along with improvements in vehicle efficiency, cell and pack design and phasing out cobalt, the industry must also focus on reducing pack sizes.

Industry must not oversize battery electric vehicle (BEV) packs

Passenger BEV packs will account for just over 50% of the annual total battery gigawatt hour demand over the next ten years, and pack sizes for BEVs are currently oversized for most use cases. What effect will reducing pack sizes have on raw material demand?

Figure 3 presents BEV sales vs. BEV battery pack size (kWh) in 2022 for the most popular models in China, Europe and the USA.

Figure 3

The average pack size for passenger BEVs in China in 2022 was 40 kWh. This was considerably higher in Europe (65 kWh) and the USA (75 kWh). The global sales-weighted average pack size was 52 kWh.

These average pack sizes are set to remain relatively stable over the next 10 years despite improvements to cell technology, providing more range and increasing raw material demand. Figure 4 presents the expected 10-year projection of average BEV pack size for key markets.

Figure 4

China’s BEV industry will rely heavily on city-focused use cases, allowing for smaller-range vehicles. The average pack size is estimated to remain around 40–42 kWh. Average pack sizes in North America will be 50% larger, at around 80 kWh. For Europe and other markets, the average BEV pack size is expected to be 67–70 kWh.

Figure 5 investigates the effect of average BEV pack size (outside China) on lithium carbonate equivalent (LCE), cobalt and nickel demand across the next 10 years. The x-axis shows the % reduction in BEV average pack size for markets outside China between 2024-2033. The y-axis shows the effect on the demand drop across this 10-year period of LCE, cobalt and nickel. Electric vehicle (EV) sales for key markets over this period are considered, as well as the estimated cathode chemistry demand.

Figure 5

For example, if average BEV pack sizes outside China are reduced by 15% (i.e. 68 kWh for North America, 57-60 kWh for Europe and the rest of the world) over 2024-2033, then the LCE demand will decrease by just over 1 million tonnes across this period. For cobalt and nickel metal, the demand will drop by 102,000 and 800,000 tonnes respectively. If pack sizes are reduced by 35% outside China, then 2.5 million tonnes of LCE, 240,000 tonnes of cobalt metal and 1.8 million tonnes of nickel metal will be saved.

Reduce BEV battery pack sizes to promote a sustainable transition to electrified mobility

Correctly sizing passenger BEV battery packs to match customer use cases and range requirements will be crucial in enabling a sustainable transition to electrified transportation. Reducing BEV pack size will reduce raw material demand, which will provide time for the supply chain to mature sustainably.

Environmental concerns can be addressed with less time pressure and raw material prices are more likely to stabilize. Smaller battery packs will slash BEV prices, promoting uptake and accelerating recycling streams due to increased supply of aged batteries. Along with correctly sizing BEV battery packs, the EV industry together with governments, must focus on faster-charging battery packs and improving the charging infrastructure.

Access the full battery cost index data

For more insights or information about the Fastmarkets NewGen Battery Cost Index and to see how this can help your business, contact us today.

Get in touch

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Watch the full video interview below, recorded remotely in July 2022, or read the key takeaways that follow. This includes additional insights and market developments from Krishna that have occurred since we spoke in July.

What is the impact of high battery material prices on EV battery pack costs?

Rising battery raw material prices have pushed up the cathode active material (CAM) cost, which is the most expensive component of a Li-ion cell, which then has a large effect on overall battery pack costs. Between May 2021 and May 2022, we saw an almost 50% increase in typical nickel manganese cobalt (NMC) pack costs. This analysis is based on spot prices rather than contract prices, so this level of increase is not currently being felt by OEMs.

However, as the battery raw material market matures we will start seeing more of an alignment between contract and spot prices. Therefore, today’s high prices are an indication of things to come in the future if prices do not cool down. This would set back the adoption rates of EVs as the cost would have to be passed down to the customer.

What can OEMs do to mitigate the effects of these high prices?

The latest raw material market price trends have shaken up the long-term strategies of EV OEMs and battery manufacturers. There is a greater focus now on making EVs more efficient to increase km/kWh by reducing the vehicle drag coefficient even further, opting for higher voltage powertrains to improve electrical efficiency, and reducing non-cell mass in the battery through cell-to-pack integration.

With cells, there is a focus on reducing metal intensity. For NMC battery packs you can expect to find around 160g of lithium per kWh and around 800g of nickel per kWh for a nickel-rich cathode. Bringing these values down will significantly reduce demand for raw materials. Reducing the average battery pack size in an EV must also be considered or perhaps even become a necessity to ensure affordable EVs for mass adoption. But then how would this affect range anxiety?

On average, according to ev-database.org, the average EV battery pack size is 64.2 kWh, and the average EV range is 332 km. However, in the UK 99% of all trips are <160 km and the global average trip distance is 15 km, so the average EV today is more than capable of meeting these needs. This also suggests that much of the battery pack (and the precious metals within) is underutilized and that the drive towards larger packs is based on “charger anxiety” (based on poor charging infrastructures worldwide) rather than range anxiety.

In summary, smaller battery packs (<60 kWh) would meet the driving needs of the vast majority, whilst reducing EV costs and the raw material demand burden. In parallel, range anxiety would be alleviated with improved charging infrastructure. Additionally, lithium iron phosphate (LFP) cells are well-suited to the increased demands of smaller batteries, such as having a longer cycle life than NMC and being able to operate between wider states of charge.

Why has there been a renewed interest in LFP in the last year?

In the last decade, LFP use was widespread in China following a royalty-free agreement with the LFP patent holders. LFP’s disadvantages, such as its low energy density, poor performance in sub-zero temperatures, and difficulty in measuring its state of charge prevented its use in Europe and North America, where OEMs began to invest more in nickel-based cathodes.

However today, its low cost cannot be ignored, and it does not invite the ESG or supply concerns surrounding nickel and cobalt. Key patents expired this year, and a great deal of R&D work is going into improving the LFP chemistry. We are seeing some manufacturers in China quoting LFP cell energy densities upwards of 200 Wh/kg. There is also growing interest in lithium iron manganese phosphate (LMFP), which could further push the capabilities of this low-cost cathode material.

LFP also uses roughly 10% less lithium per kWh than nickel-based chemistries. Because LFP is more thermally stable, the battery pack design becomes much less complex (i.e. non-cell mass in the pack is reduced) and with the innovation of cell-to-pack integration, we could be seeing LFP packs with an energy density of 180 Wh/kg. This makes LFP well suited to displacing the lower-nickel NMC chemistries in the standard and entry-range EV models.

Find out more about how the Fastmarkets NewGen Battery Cost Index provides transparency into the cost of key Li-ion cell components, as well as historical data to provide cost and cost trends.

The post What will be the effect of sustained high raw materials prices on EV batteries? appeared first on Fastmarkets.

• 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.

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