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| Hyundai Motor's IONIQ 5 / Courtesy of Hyundai Motor |
By Kim Bo-eun
Spiking costs of raw materials for electric vehicle (EV) batteries are leading to a hike in battery prices, which is placing pressure on carmakers to raise EV prices.
Bloomberg NEF recently stated battery prices might reverse the year-on-year price declines for the first time, since it began surveying these in 2012.
Battery prices had consistently fallen over the past decade, from almost $1,200 per kilowatt-hour to $137 per kilowatt-hour last year.
But battery makers are set to raise their prices, due to the surging costs of key metals used in production. Reports stated earlier that China's BYD is raising the price of its EV batteries by 20 percent.
The raw materials in the battery cathode account for about 30 percent of the battery's cost. Battery makers have sought a mix of battery parts to hedge risks related to raw material costs, such as substituting the most expensive ingredient, cobalt, for lower-costing nickel. But the price of nickel has soared in recent months.
Carmakers have pledged to increase the portion of low-cost lithium iron phosphate batteries, to hedge against rising battery material costs. Lithium prices, however, have risen 240 percent in the past year, according to market tracker Benchmark Mineral Intelligence. The current price of lithium is the highest ever in the past five years.
This is due to a supply-demand imbalance, given lithium supplies cannot be immediately increased due to the lengthy procedures in obtaining mining approval.
"The purchase of raw materials is usually done in the form of offtake agreements, which hedges against risks such as rises in material costs," a battery industry official said.
"If battery makers do end up being affected by higher raw material costs, they are able to minimize these risks because of contracts with carmakers, which can reflect higher material costs in battery prices. Companies are all geared to produce competitive products at low prices, so they will respond accordingly to factors such as rising raw material costs."
Batteries account for 40 percent of EV production costs and so this is likely to lead to a rise in EV prices, which would place them at a disadvantage. Demand for EVs has surged in recent years, driven by low battery costs, but higher costs could push the prices of vehicles back up making them less attractive.
Carmakers face increasingly tough circumstances given they are already suffering from a global shortage in the supply of auto semiconductors.
"We do not have immediate plans to raise EV costs, but this would likely be trend in the long term," an auto industry official said.
"Rising materials costs are not only limited to EVs, but also internal combustion engine vehicles, as the prices of steel, aluminum and rubber have also risen. This will lead to lower profitability for carmakers and they will start raising prices, when deemed necessary, which will then lead to lower sales."
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