In freefall: Battery prices hit record lows

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2024/10/17 Battery prices—particularly in China—are in near freefall. LFP battery cell prices dropped by 51% in 2023 to an average of $53 per kilowatt-hour. However, the global average price for these battery cells in 2023 was significantly higher at $95/kWh, with China being the largest battery market in the world.

Nearly a decade of continuous price declines

Declining battery prices for electric vehicles have been observed for over a decade. From early 2013 to early 2023, the global price per kilowatt-hour fell from $732 to $152. However, this trend halted between 2020 and 2023 due to the pandemic and disrupted global supply chains. Lower prices became possible thanks to huge efficiency gains, largely driven by significantly higher production volumes. In 2013, around 34,000 tons of lithium were processed globally, mostly for batteries. By 2023, that number had more than quintupled to 180,000 tons.

However, the current developments in China show a completely different scale. LFP battery pack costs are in near freefall: from $151/kWh (early 2023) to $79/kWh at the start of 2024 and further down to $75/kWh by April. The same trend can be seen with ternary battery chemistries (like NMC), though at a higher price point. NMC battery packs were about $10/kWh more expensive than LFP packs, reaching $86/kWh by April 2024. Batteries with high nickel content remain particularly expensive.

This trend is affecting all levels of the value chain. Even raw material costs have dropped sharply over the past 18 months. The share of the cathode in the total cost of an LFP cell in China has fallen from 50% in early 2023 to less than 30%.

Consequence of falling prices: Many EVs cheaper than gas-powered cars

The rapid price drop is affecting the Chinese auto market: Nearly two-thirds of electric vehicles sold in China are already cheaper than their gas-powered counterparts. Currently, this trend is limited to the world’s largest electric vehicle market. However, the study's authors predict that falling battery prices will soon have global consequences. Many of the more affordable Chinese EV models are slated for international release in 2025 or 2026. The EU and US are preparing for this development by planning special tariffs, citing excessive government subsidies as a cause for the price drops in China.

Overcapacity driving price trends

A key factor in the current development seems to be overcapacity, which is intensifying competition among battery manufacturers. It is estimated that Chinese battery production already exceeds global demand, further increasing price pressure. The average utilization rate of battery factories in China fell from 51% in 2022 to 43% in 2023 and is expected to drop even further. As a result, battery prices are approaching production costs, squeezing manufacturers' margins and leading to increased competition.

Moreover, battery technology and production processes are continuously improving. Chinese battery manufacturers are investing heavily in research and development, automation, and new factories. They are constantly bringing new products to market, further driving down prices. As a result, low prices are likely to persist for a few more years until the market stabilizes.