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Rising battery costs will lead automakers to explore tie-ups for scale: S&P Global Ratings


Automakers to explore new tech options

The price of cathode materials more than doubled in 12 months

LFP battery tech gains popularity

  • Author
  • Diana Kinch
  • Editor
  • Valarie Jackson
  • Commodity
  • Electric Power Metals

Battery prices are set to halt their long-running decline, rise in 2022, and remain high in 2023, which will encourage automakers to explore tie-ups to achieve scale, S&P Global Ratings said in a May 18 report.

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Battery prices will rise on a surge in the cost of raw materials backed by rising demand, according to the credit ratings agency.

Automakers will therefore likely incur higher spending on battery supply chains, and this may change the ways they do business, it said.

"On the one hand, they will explore more tie-ups; and on the other, they'll seek to widen their supplier networks and potentially cut out the middleman by directly entering the upstream supply chain," the report said. "And as electric vehicles increase their presence in the market, this effort to control costs will also involve a willingness to explore different technology options over the next two years."

Automakers will opt for EV tie-ups to achieve economies of scale, as small-scale production is a key reason for the low profitability of EV businesses, according to S&P Global Ratings.

"To improve production efficiency, more automakers are sharing their EV production platforms," the report said. "Over 2023-2028, Ford Motor Co. plans to produce two EV models, with a projected volume of up to 1.2 million units, for the European market based on Volkswagen's modular electric toolkit platform. General Motors Co. and Honda Motor Co. Ltd. announced in April 2022 to jointly develop affordable compact EVs, which are expected to go on sale in North America from 2027."

Raw materials prices

The price of raw materials used in batteries for EVs is rising, S&P Global Ratings said. "Consequently, this is reversing a long-term trend of declining battery prices. Battery suppliers are seeking to shield their profitability from the spike in lithium, cobalt, and nickel," the report said.

Lithium prices have doubled in the first quarter. Platts assessed CIF North Asia lithium carbonate at $75,300/mt May 13, up $300 on the week, as reported by S&P Global Commodity Insights, with lithium hydroxide CIF North Asia at $80,100/mt, up $100 week on week. Cobalt sulfate also rose S100/mt week on week, to CIF North Asia $17,700 May 13.

Supply disruptions are set to ease and will help material and battery prices moderate in 2023, the report continued. "However, strong market demand and tight supply will ensure prices remain higher than they were in 2021," it said.

Prices of cathode materials more than doubled in the past 12 months to March 2022, and account for 60-70% of the cost of battery packs, according to S&P Global Ratings. The compound annual growth rate in battery demand is meanwhile seen at 30%-40% from 2022 to 2025, it said.

EV penetration forecast

This is in line with the rating agency's forecast that EV penetration will grow from 8% of the total fleet in 2021 to 15%-20% globally by 2025, it said.

Around 50% of the annual sales of big automakers, such as Volkswagen and BMW, are seen comprising EVs by 2030.

Big battery players

The top three battery players will occupy more than 50% of market share until 2025, according to the S&P Global Ratings report.

The report lists the world's top three battery suppliers as Contemporary Amperex Technology Co. Ltd., LG Chem, and Panasonic Holdings Corp.

"We anticipate that the battery suppliers we rate—all of whom are recognized global market leaders—will maintain their dominance over the next two to four years, at least," the report said. "Their battery capacities and technology will continue to be a vital element for automakers and their production of EVs."

"The cost volatility that has occurred since the second half of 2021 leads us to believe that battery suppliers will seek to alleviate pressure on profitability by taking a stricter stance on passing on costs," it said.

In addition, battery makers are also seeking further cooperation with upstream players, according to the report.

"China's Contemporary Amperex Technology Co. Ltd. and LG Chem Ltd.—the world's No. 1 and No. 2 EV battery makers respectively—have both signed billion-dollar deals with Indonesian counterparties for domestic investment to build mines-to-manufacturing supply chains over the next few years," it said.

Battery tech

Lithium iron phosphate batteries are at least 10%-20% cheaper than ternary batteries and are free of costly materials such as nickel and cobalt, S&P Global Ratings said. "Recent technology breakthroughs at the battery-pack level have increased the driving range of these batteries without compromising on price or safety," the report said.

The popularity of LFP batteries is seen following two recent developments: Tesla's announcement in April that almost half of the EVs it manufactured in Q1 used LFP batteries and the 388% year-on-year EV sales growth in the first four months of 2022 for BYD Co. Ltd.—a major advocate of the technology and the No.1 EV player in China.

Volkswagen, Ford, and Mercedes-Benz Group AG have also announced plans to embrace the technology in their entry models, the report said.