E-Cars Achieve Cost Parity as Battery Prices Fall

Dear Friends & Shareholders,

According to a report in The New York Times, the battery cells for the ID.3 cost Volkswagen less than US$100 (90€) per kWh. This is made possible by economies of scale. The purely electric mid-range car, which will be launched on the market next year, will be produced and sold in high quantities. Before the future Golf competitor was presented for the first time without camouflage at this year’s IAA motor show, a special edition costing 40,000€ Euro ($44,000) was practically sold out.

Volkswagen’s cell costs among the lowest worldwide.

The $100 per kWh threshold for battery cells is regarded as the critical mark. From this point on, electric cars will be cheaper than internal combustion engines. VW’s CEO, Herbert Diess, recently said that the switch to electric mobility would not affect profit margins. That’s very interesting because it has always been assumed that car manufacturers would earn less with electrically powered vehicles than with internal combustion engines. The rethinking has begun.

According to an analysis by Benchmark Mineral Intelligence, Tesla also manages to produce battery cells for less than $100 per kWh at Gigafactory 1, which is operated jointly with Panasonic. The average costs of the competition for battery cells are between $115 and $130 with some manufacturers paying as much as $150. By way of comparison, four years ago the costs were roughly twice as high.

Battery prices erode

There are several reasons for the ever-lower costs. One is that the prices for the required raw materials have come under pressure. This applies to cobalt and lithium, in particular. The price of lithium carbonate, for example, has fallen by around 20% since 2018, while the price of lithium hydroxide has come under even greater pressure. The price of cobalt has halved in the meantime but has risen again in recent months. However, this is only a short-term additional effect. The costs for battery cells have been falling steadily since long before the correction of raw material prices and the lithium price accounts for only a very small part of the total costs.

Declining battery cell costs accelerating cost parity

Technological progress is much more important than raw material prices. Battery manufacturers are managing to use less and less cobalt in their production. This makes them less dependent on price fluctuations and even more on suppliers. A large part of the metal mined worldwide comes from the politically unstable Congo, where child labor is reported time and again.

 

According to Benchmark Mineral Intelligence, Tesla used 11 kg of cobalt per vehicle in the Model S from 2009 to 2011. In the 2016 to 2018 models, it was only 7 kg. The Model 3 is estimated to require only 4.5 kg of cobalt. The price of cobalt is thus having less and less impact on the total cost of battery cells. Their costs will continue to fall, even if the price of cobalt continues to rise.

Raw material prices likely to rise again

Although less and less cobalt is needed per battery cell, the recent price increase should continue. Instead of hundreds of thousands of electric cars, millions will soon be produced every year. VW alone is soon planning the output of 3 million electric cars per year. Mass production will more than compensate for the lower demand for cobalt per battery cell. For lithium, the mass production will lead to a huge demand push. This applies, in particular, to the higher-value lithium hydroxide, which can be obtained most cost-effectively from hard rock deposits.

Walking along one of many lithium outcrops at our hard rock lithium project in Canada.

McKinsey & Company, a management consultancy, and the Global Battery Alliance, a project of the World Economic Forum, stated in a new report that by 2030 the annual demand for batteries will increase by 25%  to 3,500 GWh globally. By way of comparison, demand last year was just 184 GWh. The recycling of battery raw materials is being technologically accelerated. However, it will probably be many years before closed cycles are in place across the board. We can be curious as to whether and how raw material producers will be able to meet the rapidly increasing demand in the meantime.

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For our German-speaking audience:

Yesterday, I visited Aktionar TV for an interview about electric vehicles and their impact on raw material supply chains. Please watch the video below: