It looks like the price of batteries for electric vehicles will rise in 2022 after a decade of sharp decline as supplies of lithium and other raw materials do not keep pace with balloon demand.
While mining companies are struggling to increase production from existing facilities and develop new sources of supply, benchmark prices of lithium carbonate 2021 have ended at record levels. In China, the largest battery-producing country, the price was Rmb261,500 ($ 41,027) per tonne, more than five times higher than last January.
Other commodities used in cathodes, the most expensive part of a battery, have also risen. The price of cobalt has doubled since last January to $ 70,208 per tonne, while nickel has risen by 15 percent to $ 20,045.
The increases undermine the technological and efficiency gains of recent years, during which automakers and battery manufacturers have worked hard together to develop long-life, high-performance batteries while trying to reduce costs. They also threaten to throw a wrench into the automotive industry’s ambitious plans for electrification, just as even previously reluctant companies like Toyota are embracing targets for electric vehicle production.
According to Bloomberg NEF, global electric car sales are estimated to reach 5.6 million vehicles in 2021 from 3.1 million in 2020, thanks to strong sales in China. Further demand growth in 2022 will mean a lithium shortage this year, as the use of the material exceeds production and depletes supplies, according to a December report by S&P Global.
The report said that, according to S&P Global Market Intelligence, supply is expected to rise to 636,000 tonnes of lithium carbonate equivalent in 2022, from an estimated 497,000 in 2021 – but demand will jump even higher to 641,000 tonnes, from an estimated 504 004.
Gavin Montgomery, research director for battery raw materials at Wood Mackenzie, said it was unlikely that lithium prices would collapse, as in previous cycles. “We are entering a kind of new era in terms of lithium prices over the next few years because the growth will be so strong,” he added.
In the short term, inventory will be limited. Manufacturers in Australia closed mines in 2020 after a period of low prices and, while Covid-19 was delayed, it was difficult to reinstate staff and bring production back to pre-pandemic levels.
Meanwhile, Chinese lithium processing companies producing lithium carbonate have been hit by power outages that were suddenly imposed in the fall. While some of these restrictions have eased, companies seem to be struggling to catch up.
For cobalt, pandemic-induced transport disruptions and border closures in Africa were behind rising prices. The emergence of the Omicron variant of coronavirus has added new disruptions in the main trade route of the cobalt-producing Congo through the South African port of Durban to China.
One lithium dealer in Japan told Nikkei Asia they expect prices to remain at current high levels, saying: “Based on car manufacturers’ electric car targets, we doubt there is an adequate supply of raw materials.” New technologies like all solid state batteries will require even greater amounts of lithium, the retailer added.
According to Bloomberg NEF, the prices of lithium-ion batteries were above $ 1,200 per kilowatt-hour in 2010, but dropped to $ 132 by 2021. However, the company estimates that average prices could rise to $ 135 per kilowatt-hour in 2022. Cathode materials typically make up about 30 percent of the total cost of battery packs.
The pressure is on to secure new supplies of raw materials as the global automotive industry turns away from the internal combustion engine to electric motors. Volkswagen and BMW aim to have half of their vehicle sales electric by 2030. Ford Motor expects 40 percent of its worldwide sales to be electrified by 2030. In a surprise move in December, Toyota said it would sell 3.5 million electric vehicles by 2030, losing an image that the company is cautious about switching to electric vehicles.
Independent battery manufacturers are rushing to increase their supply sources, including people like China’s CATL, the world’s largest battery manufacturer. China accounts for more than 65 percent of global battery production and more than half of lithium chemical production, a dominance that worries many in the automotive industry in a time of geopolitical tension.
“No country can compare with China in terms of cost competitiveness,” the Japanese lithium trader said. “There are definitely geopolitical or China risks in the supply chain.”
This article is from Nikkei Asia, a global publication with a unique Asian perspective on politics, economics, business and international affairs. Our own correspondents and outside commentators from around the world share their views on Asia, while our Asia300 division provides in-depth coverage of 300 of the largest and fastest growing listed companies from 11 economies outside Japan.
In 2020, Tesla acquired its own rights to extract lithium from clay deposits in Nevada, USA, an early example of a carmaker working to cut out the middleman. In the same year, BMW signed a five-year cobalt supply agreement with Moroccan manufacturer Managem in a $ 113 million deal.
Volkswagen signed an agreement last month to acquire the Vulcan group’s “zero carbon” lithium to supply its battery cell factories. The German carmaker announced in the same month that it would set up a joint venture with Belgian materials company Umicore to build production capacity for precursor and cathode materials in Europe.
Toyota said it has acquired enough stock of battery raw materials, including lithium, to meet its needs by 2030 through a partnership with the Toyota Tsusho dealership, in which Toyota has a 20 percent stake.
Sanshiro Fukao, a senior fellow at the Itochu Research Institute, said carmakers see raw materials as bargaining chips in negotiations with battery manufacturers, and failing to secure commodities will leave them with no choice but to buy expensive batteries from them. In the global race to produce low cost electric vehicles, it can be fatal.
The acquisition of battery raw materials could soon be as problematic for many automakers as the acquisition of semiconductors has been over the past year, Fukao said, and it is possible that automakers may not be able to manufacture electric vehicles in the planned numbers due to material shortages.
“Whether they can secure raw materials today determines whether they can triumph for 10 years from now,” he said.
A version of this article was first published by Nikkei Asia on January 3, 2022. © 2022 Nikkei Inc. All rights reserved