Market experts are closely monitoring the decline in lithium prices and its potential impact on electric vehicle costs, according to a recent Bloomberg report.
The benchmark price of lithium in China, the world’s largest new car market and a battery production hub, has dropped approximately 80% since its peak in November 2022, notes the report. Prices of other battery materials are also falling, signifying a general decline in battery prices following a raw material price surge in 2022.
Batteries constitute a significant portion of electric vehicle costs, making price reductions crucial for electric vehicle affordability. While global electric vehicle sales continue to rise, the demand isn’t escalating as rapidly as the industry anticipated, the report points out.
Low raw material prices and excess manufacturing capacity resulting from overly optimistic predictions about electric vehicle growth appear to be ingredients for a potential electric vehicle price war, although the report doesn’t go that far. However, it does suggest that automakers now have the flexibility they hadn’t enjoyed before. An excess of lithium allows automakers to continue building the necessary manufacturing infrastructure for sustained electric vehicle sales growth without price hikes that could deter consumers.
The current decline in lithium prices is partly attributed to mining expansion, particularly from “relatively low-quality mines in China.” The United States was the global leader in lithium production in the 1990s but allowed production to wane due to cost issues, as per a 2022 report. The U.S. possesses vast lithium reserves, but new mining continues to face cost challenges and opposition from environmentalists and residents in areas likely to be impacted by mining.
Smaller electric vehicle battery packs could mitigate the disruptions caused by lithium mining by requiring less material (and others). However, this seems to be going against the market trend. Large battery packs are a shortcut to achieving greater range and, consequently, protection against a major consumer concern regarding electric vehicles. It’s unlikely to change anytime soon.
