By Simon Moores, Managing Director, Benchmark Mineral Intelligence
The prevailing market price for lithium ion battery cells has fallen to $110/kWh from 2019’s average of $120/kWh as assessed by Benchmark Mineral Intelligence.
The average mid-point price of a lithium ion battery at a cell level per kWh, used in large automotive or electric vehicle (EV) contracts over 5 GWh/year, now stands at $110/kWh yet 6 years ago it was at $290/kWh, Benchmark data shows.
A long-term comparison of prices shows an impressive decline that is a good guide on how lithium ion battery production has come of EV age.
Lithium ion battery cell prices have fallen 62% since 2014 at an average of 14.9% each year.
Take that trend back to 2005 when the same average price – albeit not for automotive but large contract portable technology, the driving market at the time – was $1,300/kWh, over ten-fold today’s $110/kWh, and representing a 15.2% compound average annual fall.
However, this does not tell the full story.
If you look a little closer you will see that the landscape for lithium ion battery cell price declines has changed significantly over the last three years.
From 2014 and 2017, the price of lithium ion batteries fell an average of 21.6% a year.
Yet, between 2017 and 2020 the price of lithium ion batteries fell a fraction of that pace, at 7.7% a year.
The problem with drawing a straight line
The issue with analysing the price decline trend of lithium ion batteries over a longer period of time is that it does not give a nuanced or knowledgeable enough picture.
If we analysed this price trend between 2014 and 2020, the last 6 years, it would show a significant double digit compound annual decline of 14.9%, leaving the reader to suggest that:
- A double digit decline is occurring each year for the last 6 years and,
- That these double digit declines that are still ‘occuring’ in 2020 will carry on into the future
It is the same problem with experience curves: an over simplistic, non-industry approach to forecasting lithium ion batteries may have worked for a generalist but it is not fit for purpose for an industry participant going into the 2020s.
As large contract average lithium ion battery cell prices fall ever closer to the $100/kWh mark, the proportionate cost of the Bill of Materials increases.
And what is the largest input into the Bill of Materials? Minerals, metals and chemicals such as lithium, cobalt, nickel, graphite, manganese and copper.
Therefore to properly forecast lithium ion battery cell prices you need to understand raw materials.
Can lithium ion battery cell prices continue to fall?
The answer is yes, lithium ion battery cell prices can continue to fall well below the perceived holy grail of $100/kWh, but:
- The rate will be much slower than we have seen in the past and,
- The risk of lithium ion battery price rise for automakers is looming large
Two of the largest input raw materials into a lithium ion battery, lithium hydroxide and nickel hydroxide, have experienced 10-year lows in price whilst at the same time the lithium ion battery industry was scaling.
The low raw material price environment won’t last forever.
Benchmark’s Lithium Price Assessment Team are reporting signs of a change in sentiment in the market with some grades of lithium hydroxide and carbonate showing price increases in November 2020.
While it is too early to say whether this is a trend, Q1 2021 will bring a more solid picture as to whether prices will recover.
As the average large contract automotive price for lithium ion battery cells moves below Benchmark’s 2020 price of $110/kWh, it becomes a supply chain game for the end users.
The ability to keep that cell cost below $110/kWh, and crucially to ensure they continue to fall and remain low, will depend not on Big Auto’s negotiations with Big Battery but on the EV makers ability to lock in stable, lower cost raw material prices, especially for lithium and nickel, over the long term.
In the next decade, the primary goal should not be an obsession for consistent annual decreases, but on long term stability of raw material prices to ensure that the automaker can scale while keeping lithium ion cell prices between $80/kWh and $100/kWh.
The consistent annual decreases that the auto industry is used to will come as a result of this strategy.
In many ways, the position of battery supply chain manager in any large scale EV maker will be the most crucial of all as we truly enter this EV revolution.
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