China’s Batteries Are Now Cheap Enough to Power Huge Shifts

05 08 2024 | 11:14Colin McKerracher

Coming to Grips With A Crash

Prices for batteries in China are plummeting, and the implications are just starting to ripple outward for the global automotive market.

Over the last year, the price for lithium iron phosphate, or LFP, battery cells in China has dropped 51% to an average of $53 per kilowatt-hour. The average global price of these batteries last year was $95/kWh.

There are several factors driving prices lower. The first is raw-material prices, which have fallen sharply over the last 18 months. The cathode is where most of the raw-material costs in a battery come from, and the cathode share of total cost for an LFP cell in China has fallen from 50% at the beginning of 2023 to less than 30% this year.

The second driver is overcapacity that’s leading manufacturers to cut prices to maintain market share. China’s battery production is already higher than global EV demand, and that overcapacity problem is set to get worse before it gets better.

Overcapacity tends to lead to competitive shakeouts that shift volume toward the most efficient plants with the newest production technology, while others fall by the wayside. Average capacity utilization of battery plants in China fell from 51% in 2022 to 43% in 2023, and will be lower again this year.

BNEF’s bottom-up battery cost model shows how close average prices are now to estimated manufacturing costs, indicating that margins for vendors are shrinking.

Battery Margins Are Being Squeezed

China cell spot prices and manufacturing costs

Source: BloombergNEF

Note: The cell mentioned here is in prismatic format and excludes taxes. LFP spot price comes from the ICC Battery price database. Estimated cell manufacturing cost is for LFP cells and uses the BNEF BattMan cost model.

Raw material costs, overcapacity and margin compression from manufacturers account for the bulk of what’s going on, but there’s also still significant technology and manufacturing process improvements happening. China’s battery champions CATL and BYD continue to invest heavily in research and development, automation and additional factories, and they’re launching new products at a frenetic pace. All these factors together mean that BloombergNEF’s battery team is expecting low prices to persist for at least the next several years.

These ultra-low battery price have major implications for the automotive and power sectors. Battery cells at $50/kWh means the technology to decarbonize most of road transport globally is already here, as opposed to in some future scenario.

Lithium-ion Battery Prices Are Dropping Fast

Battery pack prices in China

Source: BloombergNEF, ICC Battery

Note: NMC = Nickel manganese cobalt and includes prices for NMC111, NMC532 and NMC 622 batteries. High-nickel NMC includes NMC811, NMC955 and NCA

Pack-level prices for the most-sold battery chemistries have been below the often-referenced $100/kWh benchmark in China since October 2023, and LFP pack prices are now at $75/kWh. At that price, EVs can be priced at or below combustion cars in most vehicle segments, marking a huge shift. China is the world’s largest auto market, and battery-electric vehicles are currently the cheapest drivetrain by average transaction price in the country, even after stripping out mini city cars from the dataset.

Electric Vehicles Are Cheaper Than Combustion Models In China

Average vehicle transaction price by drivetrain

Source: BloombergNEF, China Automotive Technology and Research Center.

Note: Battery-electric vehicles exclude mini cars.

It will take some time for those prices to be fully reflected outside China, but some of that is already happening. Even today, battery prices across different applications are converging as vendors hunt down new sources of demand. That’s good news for commercial EV manufacturers that typically have paid a significant premium for batteries compared the car market.

Almost two-thirds of EVs available in China are already cheaper than their internal combustion engine equivalents, and many cheaper electric models are planned for launch outside China in 2025 and 2026.

Electric Vehicles Are Cheaper Than Combustion Models In China

Share of EV models priced above of below combustion equivalents

Source: BloombergNEF, China Auto Market

The stationary energy-storage market may be the biggest beneficiary. Crashing battery prices make the economics of adding large-scale energy storage much more attractive. Prices of turnkey energy storage systems are already down 43% from a year ago, and our team at BNEF is watching for that segment to soak up some of the additional supply. Overcapacity isn’t going anywhere anytime soon, but BNEF expects global stationary storage installations to rise to 155 GWh this year, up 61% from last year.

Energy Storage Installations Are Booming

Global gross energy storage additions by market

Source: BloombergNEF

Note: 2024 data is BNEF's forecast. Other includes BNEF buffers not explicitly allocated to a specific country or application

All of this underscores how the harbingers of scarcity were wrong, at least so far. Over the last four years, there was a steady drumbeat of predictions that batteries and battery metals would be in short supply indefinitely.

Toyota was among the most prominent companies to voice this view, claiming just last year that there were not enough batteries to go around, and that sharing them between hybrids was a better way to reduce emissions than deploying full electrics. Those claims look very outdated now as battery prices continue to plunge.

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