After EV price cuts, cheaper batteries could be just what automakers need

Lower prices for key materials like lithium are driving down the cost of electric vehicle batteries, a balm for automakers dropping vehicle prices to revive slumping demand.

Automakers including Tesla and Lucid trimmed prices last week. Stellantis CEO Carlos Tavares warned price cuts could be a "race to the bottom" as automakers scramble to incentivize adoption and make good on expensive EV investments.

But sharp price declines for lithium, cobalt, nickel and other materials are lowering battery costs, potentially giving carmakers some relief.

The falling prices allow automakers to maintain margins as they cut stickers "because you're paying less for batteries, but you make the vehicle more attractive for the end consumer," said Gabe Daoud, an analyst at TD Cowen. The automaker "could ultimately charge whatever they want, but they need to make a margin, and they need to stay in business and not go bankrupt at the same time."

LG Energy Solution said in its fourth-quarter financial results that lower revenues were related to declining materials costs that drove down the average sales price for its battery products. Lithium hydroxide cost trends took two quarters to manifest in the company's average sales price, according to TD Cowen.

General Motors said in its fourth-quarter financial results that it is seeing lower cell costs in 2024 "driven by significantly lower raw materials prices."

In September, Claire McDonough, Rivian's finance chief, said that company would benefit from dropping materials prices this year.

Lithium hydroxide prices peaked in 2022 at $85 per kilogram. The estimated average price for this quarter is $16 per kilogram, a drop of more than 80 percent.

In a bid to soften the blow of falling nickel prices, Australia put the battery metal on a list of critical minerals this month. The designation gives producers access to a special fund to support struggling mining operations.

Fastmarkets, a commodity price reporting agency, predicts a widening cobalt surplus in 2024.

"The uncertain macroeconomic outlook coupled with continued growth of cobalt-free chemistries mean the threat of lower-than-expected demand remains," the firm said in a 2024 battery materials market preview.

For battery companies, however, costs still present a challenge. Automakers have been pressuring battery firms to lower prices to combat the affordability barrier. Chinese companies such as CATL and FinDreams, BYD's battery manufacturer, have sold relatively inexpensive packs that are turning up the heat on American companies.

Globally, the price of lithium ion battery packs lost 14 percent from 2022 to 2023 to land at a record low of $139 per kilowatt-hour last year, according to BloombergNEF's annual battery price survey. Average battery pack prices in China were $126 per kW-h, 11 percent cheaper than the average pack in the U.S.

"It's a blood bath, certainly, amongst the battery suppliers," Daoud said. "It's hard to see how any of them could maintain profitability longer term because you could argue that what [original equipment manufacturers] care most about is price."

Several factors drove battery materials price declines, according to a 2023 report from Volta Foundation: Earlier mining investments bore fruit and generated surplus, the rate of EV adoption slowed and the dominance of lithium iron phosphate chemistries softened demand for nickel and cobalt.

If materials costs continue to decline, cheaper EV sticker prices could gin up demand, Daoud said.

"You're ultimately just hoping to make the car more affordable and attractive to the mass market," he said.