Will the global average price of power batteries decrease by nearly 50% by 2026? The expected increase in market share of lithium iron phosphate

Recently, the latest report released by industry institutions shows that at the battery pack level, the global average battery price has dropped from $153/kWh in 2022 to $149/kWh in 2023.

Industry forecasts suggest that by the end of this year, the global average battery price is expected to drop to $111/kWh, and further to $80/kWh by 2026. That is to say, by 2026, the global average price of batteries will decrease by nearly 50% compared to 2023, which will help electric vehicles achieve cost parity with fuel vehicles in the United States without subsidies.

Why is the price of electric vehicle batteries falling faster than expected? Industry organizations believe that it is mainly influenced by two factors.

One is technological progress. Currently, multiple new battery products have been launched, which not only improve energy density but also lower costs. The improvement in battery energy density is mainly attributed to the innovation of battery structure, with larger battery and battery pack technologies that can reduce or even completely eliminate battery modules. Tesla has started producing its large specification 4680 battery but still faces challenges in reducing manufacturing costs.

Secondly, the prices of battery metals, including lithium and cobalt, continue to decline. The metal cost of batteries accounts for nearly 60% of the cost of batteries. According to data released by relevant institutions, the rise in raw material prices led to a surge in the cost of electric vehicle batteries in 2022. Nowadays, battery metal prices have begun to decline, and by 2030, approximately 40% of the decrease in battery costs will come from the decrease in battery metal prices.

Industry insiders have mentioned that the current mainstream power batteries worldwide are lithium iron phosphate batteries and ternary lithium batteries (nickel cobalt manganese batteries and nickel cobalt aluminum batteries). In addition to the two major batteries mentioned above, Goldman Sachs also mentioned solid-state batteries and sodium batteries, but it believes that large-scale production of both still poses challenges.

At present, the market share of ternary lithium batteries is about 60%, and lithium iron phosphate batteries occupy 35-40% of the market share.

At the same time, relevant commissioners have also raised their expectations for the market share of lithium iron phosphate batteries by 2025, from the previous 41% to 45%, while high nickel batteries will continue to dominate in the competition for high energy density.

From the perspective of the domestic market, data recently released by Cui Dongshu, Secretary General of the China Association of Automobile Manufacturers, shows that from January to October this year, 406GWh of lithium batteries were installed in China, a year-on-year increase of 38%.

Meanwhile, from January to October 2024, the proportion of vehicle models with battery energy density above 160Wh/kg was 12%, which showed a significant decrease compared to 18% in 2023. This is mainly due to the decrease in energy density caused by the substitution of ternary batteries with lithium-iron phosphate batteries.

Cui Dongshu analyzed that due to the high prices of nickel and cobalt, there is a differentiated growth between ternary lithium batteries and lithium iron phosphate batteries. With the growth of long-range products, there is still a market for ternary batteries, and price reductions are driving the total proportion of lithium iron phosphate batteries to continue to rise.