Lithium ion battery prices rise for first time in gigafactory era; automakers in negotiations

Battery producers have begun to increase lithium ion cell prices following a period of consistent raw material price rises throughout 2021, particularly for lithium.

Several of China’s major lithium ion battery makers have written to customers setting out intentions of new pricing structures, citing the rise in cathode and anode raw material prices as well as higher costs more generally, including for non-active materials such as PVDF binder, foils, and energy.

Lithium carbonate has been singled out as a major driver behind the battery cell price increases.

Benchmark’s Lithium Carbonate Price EXW China (battery) has increased 313.33% since this time last year, reaching RMB 185,000/tonne ($28,675) in mid-October. Lithium carbonate prices are presently at all-time highs and set to continue on their upward trajectory as demand continues to outstrip supply.

Battery makers appear set to pass on lithium price increases to the automotive OEMs and other downstream customers which could have a major impact on electric vehicles coming to market between 2022 and 2024.

Other key battery raw materials have also been adding to lithium ion battery’s pain.

The core set of cathode raw material prices have been increasing over the past 12 months, with Benchmark’s Nickel Sulphate EXW China and Benchmark’s Cobalt Hydroxide prices up 33.9% and 81.7% respectively.

These price pressures have led to the significant increases seen in the Benchmark Cathode Price Index, as shown in the chart below, with the index having increased by 62.4% over the course of 2021.

Falling battery costs no longer guaranteed

Reports have been circulating in China that several lithium ion battery makers have looked to increase the price of their battery cells in response to rising raw material costs.

There have also been reports that Chinese battery producers have written to consumers looking to renegotiate contracts and, in some cases, setting out new pricing structures that are no longer fixed.

A broader shift away from fixed, long-term contracts, would mean that downstream cell consumers would become more exposed to the fluctuations in input costs, particularly upstream raw material prices.

Since its inception, Benchmark has warned of the looming battery raw material deficit which could lead to volatile and rising prices and curtail automakers’ electrification plans.

While lithium prices have increased dramatically over the past year, it’s worth noting that the true lithium supply shortage will not materialise until next year and is set to continue through the mid 2020s.

These raw material price rises have only just begun to factor into battery cell prices, and it is inevitable that we will see further price increases in 2022, initially from lower tier producers and ultimately from leading tier 1 battery manufacturers.

Battery makers are being buffeted by rising raw material cathode and anode raw material costs, which represent the largest share of a cell’s bill of materials, but also by price rises for peripheral battery cell components such as binder materials, and copper and aluminium foils used in electrode production.

The market is having to reposition itself for a period of rising battery cell prices, a new phenomena for an industry conditioned to expect year-on-year $/kWh price falls, a trend which should further prioritise raw material sourcing strategy for a greater swathe of the lithium ion supply chain.

Ultimately raw material price rises mean rising battery cell costs for automakers. This is now beginning to play out.

Learn more about Benchmark’s Lithium ion Battery Megafactory Assessment Methodology here.