International agencies predict that the average price of lithium iron phosphate batteries will fall below $100/kWh by 2025

Bloomberg New Energy Finance, a market research and analysis firm, has said that after the downward trend in lithium-ion battery prices suffered a short-lived reversal, the price of lithium-ion batteries in 2023 fell by 14% compared with 2022.

The company released the latest installment of its annual survey of lithium-ion battery pricing, which fell again this year after unprecedented price increases in 2022.

The company noted that global demand for lithium-ion batteries in the electric vehicle (EV) and battery storage markets could reach 950 GWh by 2023.

On average, the price of lithium-ion batteries in 2023 is down 14% compared to the price in 2022, to a record $139/kWh. this reduction is driven by falling raw material and component prices, as well as increased production capacity.

However, despite the good news, Bloomberg New Energy Finance no longer expects the average battery pack price to fall below $100/kWh by 2024 (as it predicted in 2020), nor will it fall to such a level until 2026, as it predicted last year. Bloomberg New Energy Finance had previously predicted that the average price of lithium-ion batteries would be around $113/kWh by 2025. by 2030, it would drop significantly to around $80/kWh.

Indeed, as supply chain issues such as rising raw material costs, logistical challenges in the wake of the New Crown epidemic, and rising demand for electric vehicles have converged over the past few years, Bloomberg New Energy Finance had predicted in its 2021 report that 2022 could be the first year of rising battery costs since the survey study began in 2010.

That prediction proved to be correct. In the study, the company claimed that the average price of battery packs rose 7% from 2021 to 2022, rising to $151/kWh. in the 10 years prior to that, there had been a steady decline at about 10% per year.

China Produces Lowest Cost Lithium Batteries, While U.S. and Europe Face Learning Curve

It is perhaps not surprising that China produces the lowest-priced batteries in the world, given the country's massive manufacturing scale and entire value chain from materials processing to finished products, as well as its early advantage in technology development and expertise.

The average price of batteries in China is $126/kWh, while those in the US and Europe are 11% and 26% higher, respectively. As both the U.S. and Europe strive to become major players in the global battery value chain, the higher prices reflect the relative immaturity of their industries and the fact that many manufacturers are now competing with each other, Bloomberg New Energy Finance said.

In May, commodity price reporter Fastmarkets Inc. said it expects prices for nickel-manganese-cobalt (NMC) ternary lithium-ion batteries to fall below $100/kWh by 2027. Lower-cost lithium iron phosphate (LFP) battery packs will reach the sub-$100 threshold even sooner, in 2025.

Fastmarkets again noted that these price points could come sooner in China, while Jordan Roberts, the firm's battery raw materials analyst, said lithium carbonate prices will remain high in 2023, but won't return to last year's peak prices.

The slowdown in the rate of cost declines has sent some shockwaves through the battery industry after Bloomberg New Energy Finance found some battery pack prices below $100/kWh as early as 2020.

Evelina Stoikou, an analyst at the firm, said 2023 is another year in which battery prices are closely tied to raw material prices, and the reasons why and how prices are falling have changed.

We've been doing this survey for years, and scaling up and technological innovation have driven down battery prices, but that dynamic has changed," Stoikou said. This year's price decline is due to significant capacity growth across the value chain, combined with weaker-than-expected market demand."

Lithium-ion battery prices are expected to fall to $133/kWh in 2024, according to a report by Bloomberg New Energy Finance commissioned by miners and metals traders to conduct the survey, based largely on expectations that lithium, nickel and cobalt costs will fall again.

The shift to low-cost lithium iron phosphate batteries continues

As the electric vehicle industry and the battery storage industry increasingly adopts lithium iron phosphate batteries, the average price of nickel-manganese-cobalt (NMC) ternary lithium-ion batteries is US$130/kWh, while the average price of lithium iron phosphate batteries is US$95/kWh. lithium iron phosphate batteries compare to about one-third (32%) lower.

In the Bloomberg New Energy Finance 2022 and 2023 surveys, another interesting dynamic change is that although the cost of lithium iron phosphate batteries is lower than nickel-manganese-cobalt (NMC) ternary lithium-ion batteries, the proportion of lithium carbonate used in their production is much higher than that of nickel-manganese-cobalt (NMC) ternary lithium-ion batteries. This means that when the price of lithium carbonate soared last year, the cost of lithium iron phosphate batteries rose faster.

Yayoi Sekine, head of energy storage research at Bloomberg New Energy Finance, said, "In the past two years, battery prices have been on a roller coaster. Markets such as the U.S. and Europe are establishing local battery manufacturing, and we're watching closely to see how production incentives and tighter regulation of key minerals will affect battery prices."

These localization efforts will add complexity to regional battery pricing dynamics in the coming years. The U.S.'s Cutting Rapid Inflation Reduction Act and Bipartisan Infrastructure Act put billions of dollars into the battery value chain, and just days ago, the European Commission approved the start of negotiations on the Net Zero Industry Act, which is the EU's response to the release of these pieces of U.S. legislation.