China's Affordable Batteries Spark Massive Energy Transformation

Prices for batteries in China are plummeting, and the implications are just starting to ripple outward for the global automotive market.

Over the last year, the price for lithium iron phosphate, or LFP, battery cells in China has dropped 51% to an average of $53 per kilowatt-hour. The average global price of these batteries last year was $95/kWh.

There are several factors driving prices lower. The first is raw-material prices, which have fallen sharply over the last 18 months. The cathode is where most of the raw-material costs in a battery come from, and the cathode share of total cost for an LFP cell in China has fallen from 50% at the beginning of 2023 to less than 30% this year.

The second driver is overcapacity that’s leading manufacturers to cut prices to maintain market share. China’s battery production is already higher than global EV demand, and that overcapacity problem will worsen before it gets better.

Overcapacity tends to lead to competitive shakeouts that shift volume toward the most efficient plants with the newest production technology, while others fall by the wayside. Average capacity utilization of battery plants in China fell from 51% in 2022 to 43% in 2023, and will be lower again this year.

BNEF’s bottom-up battery cost model shows how close average prices are now to estimated manufacturing costs, indicating that margins for vendors are shrinking.

 

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Source: Bloomberg L.P.

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