Over the last year, the global lithium market has experienced notable fluctuations, particularly in the realm of lithium carbonate used extensively in electric vehicle (EV) batteries. In November 2022, lithium carbonate prices soared to CNY 600,000 per tonne, driven by supply deficits and robust demand. However, by November 2023, the price drastically fell to CNY 130,000 per tonne, a 74.88% decrease. This downturn is linked to decreased demand, stabilized supply, and elevated inventories, partly due to the Chinese government's extensive subsidies during 2021 and 2022. Similarly, in the US and Europe, lithium carbonate prices also declined, mirroring weak regional demand.

Despite the dip in lithium prices, the demand for batteries in electric vehicles and stationary energy storage is predicted to surge by 53% year-on-year in 2023, reaching 950 gigawatt-hours. However, this growth hasn't translated into expected revenues for major battery manufacturers, leading to reduced plant utilization rates. Consequently, EV and battery makers have reassessed their production targets, influencing battery prices. After peaking at the end of 2022, lithium prices are now on a downward trajectory, allaying earlier concerns of sustained high prices.

In terms of battery costs, the average price for battery electric vehicle (BEV) packs in 2023 was $128/kWh, with cell costs at $89/kWh, implying that cells constitute 78% of the total pack price. Over recent years, the cell-to-pack cost ratio has shifted from the traditional 70:30 split, partly due to innovative pack designs like cell-to-pack approaches that have reduced costs. Regionally, China boasted the lowest average battery pack prices at $126/kWh, while prices in the US and Europe were higher by 11% and 20%, respectively. This discrepancy reflects the nascent stages of these markets, higher production costs, and varied applications.

The industry is increasingly adopting lithium iron phosphate (LFP) cathode chemistry for its cost-effectiveness. In 2023, LFP packs and cells had the lowest global weighted-average prices at $130/kWh and $95/kWh, respectively. Notably, this is the first time LFP average cell prices have dipped below $100/kWh, making them 32% cheaper than lithium nickel manganese cobalt oxide (NMC) cells.

Localization of battery manufacturing in the US and Europe could, however, push up battery pack prices due to higher costs in energy, equipment, land, and labor compared to Asia, which currently dominates battery production. While local policies, like the $45/kWh production tax credit under the US Inflation Reduction Act, may mitigate some costs, their overall impact remains uncertain.

Looking ahead, continued investments in R&D, manufacturing process improvements, and supply chain capacity expansion are expected to enhance battery technology and reduce costs. BloombergNEF forecasts that next-generation technologies, including silicon and lithium metal anodes, solid-state electrolytes, and new cathode materials, will be crucial in driving further price reductions in the coming decade.


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