Prices for batteries in China have dropped significantly, with lithium iron phosphate (LFP) battery cells falling by 51% to $53 per kilowatt-hour over the last year. This decline is set against a global average price of $95/kWh for these batteries last year. Several factors are driving this price reduction. First, raw-material prices have decreased substantially in the past 18 months. The cost contribution of the cathode, which is the primary source of raw-material expense in a battery, has dropped from 50% at the beginning of 2023 to under 30% this year.
Additionally, overcapacity in battery production is pushing manufacturers to lower prices to maintain market share. China is producing more batteries than the global electric vehicle (EV) demand, which exacerbates the overcapacity issue. This situation typically leads to competitive shakeouts where only the most efficient production plants with the latest technology survive, while others may shut down. In China, the average utilization rate of battery production facilities fell from 51% in 2022 to 43% in 2023, with further declines expected this year.
BloombergNEF’s analysis indicates that average battery prices are now very close to the estimated manufacturing costs, suggesting shrinking profit margins for manufacturers. While raw material costs, overcapacity, and reduced margins are major factors, continuous improvements in technology and manufacturing processes also play a role. Leading Chinese battery manufacturers, such as CATL and BYD, are heavily investing in research and development, automation, and new factories, launching new products rapidly. These efforts are expected to keep prices low for the next several years.
The implications of these low battery prices are significant for both the automotive and power sectors. With battery cells priced at $50/kWh, the technology to decarbonize road transport globally is now available. Since October 2023, pack-level prices for the most common battery chemistries have been below the $100/kWh benchmark in China, with LFP pack prices at $75/kWh. At this price point, electric vehicles (EVs) can be sold at prices comparable to or lower than internal combustion engine vehicles in most segments.
In China, the world’s largest auto market, battery-electric vehicles are now the cheapest drivetrain on average, even excluding mini-city cars. Although it will take time for these price reductions to be fully reflected outside of China, the trend is already beginning. Battery prices across various applications are converging as manufacturers seek new demand sources. This is particularly beneficial for commercial EV manufacturers who have historically paid higher prices for batteries compared to the car market.
In China, nearly two-thirds of EVs are already cheaper than their gasoline-powered counterparts, and many affordable electric models are planned for launch internationally in 2025 and 2026. The stationary energy storage market stands to gain the most from falling battery prices. The economics of installing large-scale energy storage systems are becoming more favorable. Turnkey energy storage system prices have dropped by 43% from a year ago, and BloombergNEF expects global stationary storage installations to increase to 155 GWh this year, a 61% rise from last year.
This situation contradicts previous predictions of long-term battery and battery metal shortages. Notably, Toyota had suggested that there wouldn’t be enough batteries to go around, advocating for hybrids over full electrics to reduce emissions. However, these claims appear outdated as battery prices continue to fall.
