Battery costs rise as lithium demand outstrips supply

Battery costs rise as lithium demand outstrips supply

Carmakers scramble for raw materials in a bid to win global electric vehicle race

( RURIKA IMAHASHI, Nikkei staff writer )

The price of batteries for electric vehicles looks set to rise in 2022 following a decade of sharp decline as supplies of lithium and other raw materials fail to keep up with ballooning demand.

While mining companies scramble to increase production from existing facilities and develop new sources of supply, benchmark prices of lithium carbonate ended 2021 at records. In China, the biggest battery-producing country, the price was 261,500 yuan (just over $41,060) a ton, more than five times higher than last January.

Other commodities used in cathodes, the most expensive part of a battery, have also been rising: The price of cobalt has doubled since last January to $70,208 a ton, while nickel jumped 15% to $20,045.

The increases are undermining the technological and efficiency gains of recent years, when automakers and battery makers have worked hard together to develop long-life, high-performance batteries while trying to reduce costs. They also threaten to throw a wrench in the car industry's ambitious plans for electrification just as even formerly reluctant companies like Toyota embrace targets for electric vehicle production.

According to Bloomberg NEF, global electric car sales are estimated to have reached 5.6 million vehicles in 2021 from 3.1 million in 2020, thanks to brisk sales in China. Further demand growth in 2022 will mean a lithium deficit this year as use of the material outstrips production and depletes stockpiles, according to a December report from S&P Global.

The report said that according to S&P Global Market Intelligence, supply is forecast to jump to 636,000 metric tons of lithium carbonate equivalent in 2022, up from an estimated 497,000 in 2021 -- but demand will jump even higher to 641,000 tons, from an estimated 504,000.

Gavin Montgomery, research director for battery raw materials at Wood Mackenzie, said lithium prices are unlikely to crash, as they did in previous cycles: "We're entering a sort of new era in terms of lithium pricing over the next few years because the growth will be so strong."

In the short term, supplies will be limited. Producers in Australia closed down mines in 2020 after a period of low prices, and as COVID-19 lingers, it has proved difficult to rehire staffers and bring production back to pre-pandemic levels.

Meanwhile, Chinese lithium-processing companies that make lithium carbonate were affected by restrictions on power use introduced suddenly in the autumn. Though some of those restrictions have eased, companies appear to be struggling to catch up.

For cobalt, pandemic-induced transportation disruptions and border closures in Africa have been behind the soaring prices. The emergence of the omicron variant has added new disruptions in the main trade route from cobalt-producing Congo through the South African port of Durban to China.

A worker inspects batteries at a Xinwangda Electric Vehicle Battery Co. factory in Nanjing, China. (AFP via Getty)

Sourcing battery raw materials could soon prove as problematic for many carmakers as sourcing semiconductors has in the past year, Fukao said, and it is possible that carmakers may not be able to produce electric vehicles in the numbers planned due to shortages of materials.

"Whether they can secure raw materials today determines if they can prevail 10 years from now," he said.