What will be the effect of sustained high raw materials prices on EV batteries?

Fastmarkets’ Muthu Krishna explains the significance of high battery raw material prices on the overall cost of electric vehicle (EV) batteries. He also discusses ways in which these prices could be mitigated and the growing popularity of LFP batteries.

Watch the full video interview below, recorded remotely in July 2022, or read the key takeaways that follow. This includes additional insights and market developments from Krishna that have occurred since we spoke in July.

What is the impact of high battery material prices on EV battery pack costs?

Rising battery raw material prices have pushed up the cathode active material (CAM) cost, which is the most expensive component of a Li-ion cell, which then has a large effect on overall battery pack costs. Between May 2021 and May 2022, we saw an almost 50% increase in typical nickel manganese cobalt (NMC) pack costs. This analysis is based on spot prices rather than contract prices, so this level of increase is not currently being felt by OEMs.

However, as the battery raw material market matures we will start seeing more of an alignment between contract and spot prices. Therefore, today’s high prices are an indication of things to come in the future if prices do not cool down. This would set back the adoption rates of EVs as the cost would have to be passed down to the customer.

What can OEMs do to mitigate the effects of these high prices?

The latest raw material market price trends have shaken up the long-term strategies of EV OEMs and battery manufacturers. There is a greater focus now on making EVs more efficient to increase km/kWh by reducing the vehicle drag coefficient even further, opting for higher voltage powertrains to improve electrical efficiency, and reducing non-cell mass in the battery through cell-to-pack integration.

With cells, there is a focus on reducing metal intensity. For NMC battery packs you can expect to find around 160g of lithium per kWh and around 800g of nickel per kWh for a nickel-rich cathode. Bringing these values down will significantly reduce demand for raw materials. Reducing the average battery pack size in an EV must also be considered or perhaps even become a necessity to ensure affordable EVs for mass adoption. But then how would this affect range anxiety?

On average, according to ev-database.org, the average EV battery pack size is 64.2 kWh, and the average EV range is 332 km. However, in the UK 99% of all trips are <160 km and the global average trip distance is 15 km, so the average EV today is more than capable of meeting these needs. This also suggests that much of the battery pack (and the precious metals within) is underutilized and that the drive towards larger packs is based on “charger anxiety” (based on poor charging infrastructures worldwide) rather than range anxiety.

In summary, smaller battery packs (<60 kWh) would meet the driving needs of the vast majority, whilst reducing EV costs and the raw material demand burden. In parallel, range anxiety would be alleviated with improved charging infrastructure. Additionally, lithium iron phosphate (LFP) cells are well-suited to the increased demands of smaller batteries, such as having a longer cycle life than NMC and being able to operate between wider states of charge.

Why has there been a renewed interest in LFP in the last year?

In the last decade, LFP use was widespread in China following a royalty-free agreement with the LFP patent holders. LFP’s disadvantages, such as its low energy density, poor performance in sub-zero temperatures, and difficulty in measuring its state of charge prevented its use in Europe and North America, where OEMs began to invest more in nickel-based cathodes.

However today, its low cost cannot be ignored, and it does not invite the ESG or supply concerns surrounding nickel and cobalt. Key patents expired this year, and a great deal of R&D work is going into improving the LFP chemistry. We are seeing some manufacturers in China quoting LFP cell energy densities upwards of 200 Wh/kg. There is also growing interest in lithium iron manganese phosphate (LMFP), which could further push the capabilities of this low-cost cathode material.

LFP also uses roughly 10% less lithium per kWh than nickel-based chemistries. Because LFP is more thermally stable, the battery pack design becomes much less complex (i.e. non-cell mass in the pack is reduced) and with the innovation of cell-to-pack integration, we could be seeing LFP packs with an energy density of 180 Wh/kg. This makes LFP well suited to displacing the lower-nickel NMC chemistries in the standard and entry-range EV models.

Find out more about how the Fastmarkets NewGen Battery Cost Index provides transparency into the cost of key Li-ion cell components, as well as historical data to provide cost and cost trends.