Can Falling Li-ion Prices Boost EV Sales?

IN 2024 — two things happened: sales of electric vehicles declined and the price of lithium-ion batteries — which constitute about 40-60% of EV pricing — declined 90% from $1,400 per kilowatt hour in 2010 to $140 per kilowatt hour in 2023, according to the International Energy Association (IEA). While some see this trend as a blessing in disguise for global electric vehicle ecosystem, others are still in the ‘watch and wait’ phase, scrutinising how this trend would aid EV momentum.

Nonetheless, the sharp fall is viewed as a beacon of hope, at a time when global EV sales have fallen over the past few months. Back home, domestic automobile manufacturers are anticipating faster adoption of EVs, despite dismal sales, even as hybrids and CNG (compressed natural gas) have gained momentum.

With stiff competition, automakers globally are racing to price their EVs on par with the ICE (internal combustion engine) vehicles and other alternative fuel vehicles. In the U.S. and Europe — where competition has heated up owing to Elon Musk-led Tesla and Chinese EV makers such as BYD — automakers such as Stellantis, General Motors and Renault are in frenzy to introduce low-cost EV models by betting on reduction in lithium-ion battery prices and size.

In 2023, worldwide sales volume of batteries for EVs rose to an all-time high of over 750 gigawatt hours (GWh), reflecting a surge in EV uptake, according to IEA. “Today nearly one in five new cars sold is electric. Both bigger cars and range concerns have driven an increase in the average size of EV battery packs in recent years. Globally, the volume of batteries for electromobility has quadrupled over the past three years, with batteries for passenger light-duty vehicles (PLDVs) accounting for over 90% of this increase,” says IEA.

Domestic EV Makers Cut Prices

Tata Motors, India’s largest EV manufacturer, reduced the price of its electric SUV (sports utility vehicle) Nexon.ev by ₹1.2 lakh to ₹14.99 lakh in February. Tata Motors — which has a 73% share in the evolving EV segment — also slashed the price of Tiago.ev, which is widely popular amongst fleet operators, by up to ₹70,000. The manufacturer of Nexon.ev attributes the reduction in lithium-ion battery prices as the reason behind price revision across models.

China-based CATL (Contemporary Amperex Technology Ltd.) leads the global EV battery market with a 37% market share. CATL had earlier this year announced that it plans to reduce lithium-ion battery prices by 20% in 2024.

As Tata Motors plans to introduce 10 new EV models by 2025, the company anticipates benefits from the decline in lithium-ion battery prices. “Over the past year, global prices for lithium-ion batteries have softened, which has been beneficial for EVs. Presently, these batteries constitute a significant proportion of the cost of an EV. The softening has helped reduce manufacturing cost. On current and future price projections, we have passed on incremental benefits to customers through price revisions. We are also utilising this reduction to enhance features and the driving range of our EVs, which will make our products more lucrative to customers and reduce range anxiety,” says Shailesh Chandra, managing director, Tata Motors Passenger Vehicle Ltd. and Tata Passenger Electric Mobility Ltd.

Similarly, JSW MG Motor India (formerly MG Motor India) — the country’s second-largest EV manufacturer — announced a price reduction across its popular models citing similar reasons. The company, a joint venture between Sajjan Jindal-led JSW Steel and China-based SAIC Motor — reduced the price of its Comet EV by ₹99,000. This move by the country’s leading EV manufacturers is being viewed as a sign of reviving EV sales.

“The decline in lithium-ion battery prices would definitely benefit automobile manufacturers and in turn customers,” R.C. Bhargava, chairman, Maruti Suzuki India, told Fortune India during the Q4 analyst call. Maruti plans to drive in its first electric SUV by FY26. Hisashi Takeuchi, MD and CEO, Maruti Suzuki India Ltd., has already announced it will introduce multiple EVs at multiple price points.

Analysts observe that a price correction for lithium-ion batteries would entail a smooth transition towards EVs in the domestic automobile market.

“If you look at the Indian EV space, OEMs have have been forthcoming in passing on the benefit of declining battery cell prices to consumers, because ultimately all these OEMs are focused on expanding their market share and accordingly price their products competitively. An increase in the overall EV penetration on account of reduction in upfront price anyways tends to benefit OEMs,” says Rohan Gupta, vice president, corporate ratings, ICRA. As domestic automobile manufacturers gear up for launches in 2024, Gupta opines lithium ion battery prices would be a major deciding factor on how they price their EV offerings.

Meanwhile, Chandra concurs that the price softening for lithium-ion batteries will help in accelerating the company’s mission of mainstreaming EVs in India. P. Balaji, group chief financial officer (CFO), Tata Motors, observes that stability in lithium-ion battery prices would calm down the otherwise tumultuous global EV market. “We have to wait and see how the entire EV market evolves as pricing stability returns to the market. One reason why the global EV market is in turmoil is because of the sharp correction in prices. Everyone is in a ‘wait and watch’ mode,” Balaji said in Q4 FY24 analysts call.

Meanwhile, electric two-wheeler manufacturers have reaped benefits from the battery price decline despite the FAME-II (faster adoption for the manufacturing of electric vehicles and hybrids) subsidy cut. In FY24, the sales of electric two-wheelers surged 33.3% to 9,10,930 units against 6,82,937 in FY23, according to VAHAN. Gupta observes that leading electric two-wheeler manufacturers were able to take advantage of the correction in the lithium-ion battery prices, thus pricing their products competitively and supporting electric two-wheeler sales.

“In Q4 of FY24, the subsidy for electric two-wheelers declined. What supported electric two-wheeler sales was a decline in battery prices, which allowed them to pass on the price difference to consumers,” says Gupta.

The country’s leading electric two-wheeler manufacturer Ola Electric has already reduced the price of its S1X e-scooter by ₹5,000 to ₹10,000 across variants. Similarly, Ather Energy slashed the price of its 450S electric scooter by up to ₹20,000. Gupta notes that if electric two-wheeler’s price is on par with that of ICE vehicles, more consumers are likely to choose electric vehicles.

“In two-wheelers, batteries contribute to around 40% of the price. Now, as battery prices reduce gradually, the overall cost of production of EVs will decrease. Manufacturers can price vehicles more competitively vis-a-vis the ICE segment,” says ICRA’s Gupta.

A decline in battery prices would benefit not just OEMs but those involved in the ecosystem such as battery recycling and battery swapping companies. Pulkit Khurrana, co-founder, Battery Smart says that the decline in lithium-ion battery prices has increased self-reliance among manufacturers.

ICRA’s Gupta observes that correction in battery prices would improve the return metrics of battery swapping companies. “The primary cost for battery swapping systems is the energy capex, which involves investing in batteries to cater to customers. If battery prices decline, investment needs for battery-swapping also decrease, making it more attractive for customers with lower upfront costs. This improves return metrics for battery-swapping infrastructure. Therefore, anything that benefits the overall EV ecosystem, such as declining battery prices, will also benefit battery-swapping players,” notes Gupta.

Why Battery Prices Are Declining

Lithium-ion batteries form the heart of EVs. At present, most common chemistries used in lithium-ion batteries are lithium nickel manganese cobalt oxide (NMC); lithium nickel cobalt aluminium oxide (NCA); lithium iron phosphate (LFP); and lithium cobalt oxide (LCO). Notably, lithium nickel manganese cobalt oxide (NCM) and Lithium Nickel Cobalt Aluminium Oxide (NCA) battery chemistries dominate the EV market due to their high nickel content, which allows for higher energy densities, as per IEA. Nickel has become more popular than cobalt in these batteries because of the demand for increased EV range, says IEA.

Industry attributes a decline in raw material prices to be the primary reason behind the decline in battery cells and battery prices. With technological innovations, the share of the costs of raw materials has increased in batteries and any fluctuation in battery prices would be defined by the volatility in raw material prices.

Pankaj Sharma, co-founder, Log9 Materials, says factors such as a decline in raw material input cost, production cost, volume and chemistry are the key determinants influencing lithium-ion battery prices at present. Backed by Amara Raja, the Bengaluru-headquartered advanced battery solutions company, inaugurated India’s first lithium-ion battery manufacturing unit in April last year. The company’s current battery pack manufacturing capacity stands at 250 megawatt hours.

“The decline in commodity prices, coupled with a substantial increase in global production capacity across the battery value chain, from raw materials to battery cells and packs, contributed to a sharp decline in battery prices. As a result of these factors, battery prices corrected to around $139-140 per kilowatt-hour in 2023, highlighting the impact of improved supply and reduced commodity prices on the overall cost of batteries,” says Gupta.

Meanwhile, Anand Kabra, co-founder, Battrixx, observes that an overcapacity in the global manufacturing sector has aided price reduction. Many leading manufacturers, according to Kabra, are operating at only 25-30% of their capacity. “This surplus has created pressure to utilise these excess capacities. Concurrently, there has been a drop in lithium carbonate prices, a key material for lithium batteries. The combination of these factors has led to a substantial decrease in cell prices, with a nearly 50% drop in the past year,” notes Kabra.

The China Factor

Domestic automobile manufacturers are heavily dependent on China for procuring lithium-ion battery packs. China currently accounts for 58% of lithium processing globally, followed by Chile (29%) and Argentina (10%) according to IEA.

China undertakes well over half of global raw material processing for lithium and cobalt and has almost 85% of global battery cell production capacity. With a reduction in raw material prices, manufacturers such as CATL and BYD have announced price cuts, triggering a price war. Apart from CATL, domestic automakers are dependent on LG Energy Solutions and BYD for lithium-ion batteries. LG Energy Solutions and BYD are the second and third-largest battery manufacturers. According to an IEA report, global investment in EV batteries has surged eightfold since 2018 to $115 billion in 2023, with China, Europe and the United States cumulatively accounting for 90% of the share.

As investment in the EV batteries market increases, Indian automakers are competing with the likes of Tesla, Beijing Automotive Group, Volkswagen, Nissan Motor and Honda Motor amongst others in procuring lithium-ion batteries from Chinese-based battery manufacturers.

“In 2023, about 400 GWh of lithium-ion cells were produced. India bought 2 GWh of cell. That’s 0.5% of global production,” says Log9 Materials’ Sharma, adding that unlike global players, domestic OEMs will not benefit immediately from price reduction but would see an impact on a year-on-year basis.

Lithium-ion Battery Localisation

With the softening of lithium-ion battery prices, localisation would become easier which will translate into a faster adoption of EVs, note analysts. The government has already announced various schemes such as the PLI (Production-linked Incentive) scheme for Advanced Cell Chemistry to expand lithium-ion manufacturing capacity with an incentive of ₹18,100 crore. As the country continues to mine critical minerals and lithium reserves, this would mark a significant step in battery manufacturing, according to industry players.

Kabra observes that with a complete raw material supply chain in India, suppliers have begun announcing capacities for internal components of cells like anodes, cathodes, and electrolytes. “The Indian ecosystem is in the process of development and will take two to three years to fully establish. Once these capacities are in place, there is a strong possibility that India’s dependency on countries like China will decrease,” notes Kabra.

Outlook for Lithium-ion Batteries

The industry expects no major correction to happen in the near term in lithium-ion battery prices. Nonetheless, battery prices are projected to decline to around $100 per kilowatt hour by 2027.

Log9 Material’s Sharma says lithium is expected to become affordable in 5-10 years. “While significant price drops are not expected, there will be corrections, with fluctuations of 10-20% in lithium-ion battery prices. The global production of lithium-ion raw materials may increase 2-3 times, but so will demand. And that’s where the raw material cost will be trying to touch up the production demand. The major correction has already happened, but going forward 10-20% up-down might happen,” observes Sharma.