Lithium prices to push up LFP electric vehicle battery costs by 16% in 2022

The rise in lithium carbonate prices could increase production costs of lithium-iron phosphate (LFP) battery cells by at least 16%, Benchmark Mineral Intelligence analysis shows, adding further pressure to electric vehicle (EV) makers next year. 

Benchmark’s Chinese battery-grade lithium carbonate prices have risen by 346% this year, as sales of EVs in China have almost doubled from a year earlier and mined supply has struggled to keep pace. 

Automakers globally are bracing for the price hit on LFP cells – also known as iron-based batteries. The rise in lithium prices comes amid rising costs for other battery materials such as electrolyte, copper foil as well as binder material PVDF. 

Battery producers have begun to increase lithium ion cell prices Benchmark first reported last month. BYD, a leading producer of LFP batteries, reportedly raised its prices by 20% in November. 

Automakers are already grappling with a global shortage of semiconductors and an increase in the prices of industrial metals such as aluminium and copper.  

“Prices of our key materials like aluminum, copper and also chips are increasing, and there will be pressures for our cost controlling,” Stanley Qu, senior vice president for finance at electric car startup Nio said this month. 

LFP batteries have become a key battery technology in China due to their lower cost and higher safety compared to nickel and cobalt (NCM) batteries. A total of 53.2 GWh of LFP batteries were installed in transport applications this year, compared to 54.1 GWh for NCM batteries, according to official data. 

China’s best-selling electric vehicle this year is the Hongguang Mini, which costs less than $5,000 for the shorter-range version. 

LFP is also becoming a key chemistry for large energy storage projects in China, a market that’s set to grow rapidly as the country increases installations of wind and solar power to meet its climate goals. 

Price rises prompt battery makers to look upstream

The price increases in lithium could prompt battery makers to take a more active role in securing supply. The world’s largest battery maker CATL said this year it would increase its investment in the upstream raw material supply chain. 

Last week CATL said it would set up a mining subsidiary in Yichun, in Jiangxi province, to extract lithium from local lepidolite rock. It also held discussions with Argentina’s state energy company YPF about lithium exploration in the country. 

CATL said its battery prices have fallen from 1.16 Rmb a watt-hour in 2018 ($180 a kWh) to 0.78 Rmb a watt-hour ($120 a kWh) in the first half of this year, according to its data. This includes both its LFP and high nickel technologies. 

While most battery and EV manufacturers have signed long-term lithium supply agreements, which protect them from near-term price rises, those are up for negotiation at the end of this year. Future contracts with lithium producers could include more frequent “price breaks” to reflect price increases, according to Benchmark. Contract renegotiations are heading towards quarterly or even monthly price breaks for a lot of the deals.