The race for a zero-emission future in transportation is essentially a race for batteries. The cost of batteries, being the most significant expense in any electric vehicle, plays a crucial role in determining the affordability of EVs. Cheaper batteries translate to cheaper EVs, making electric cars and trucks more accessible to consumers.
In a recent study by the International Energy Agency (IEA), it was reported that prices for lithium-ion battery packs dropped by 20% in 2024, marking the most significant decrease since 2017. This decline in prices can be attributed to increased competition, higher production volumes, and a growing demand for batteries. The reduction in lithium prices, in particular, has been substantial, reaching levels similar to those in 2015 despite a six-fold increase in demand for lithium in 2024 compared to 2015.
One of the key findings of the study was the widening price advantage that China has over other regions in the battery market. China accounted for 80% of global battery cell production in 2024, outpacing the United States, the European Union, Korea, and Japan. The fierce competition in China has not only driven down profit margins for most producers but has also led to increased manufacturing efficiency and access to a skilled workforce, resulting in faster cost reduction and innovation.
Interestingly, the study revealed that hybrid batteries are more expensive than EV batteries, despite being smaller in size. This is because the cost of components in hybrid batteries is spread across fewer cells, increasing the price per kilowatt-hour. In 2024, the average price of a 20 kWh PHEV battery pack was equivalent to that of a 65 kWh BEV battery pack.
China’s dominance in the production of lithium iron phosphate (LFP) batteries has had a significant impact on the market. LFP batteries, traditionally considered a lower-cost option for EVs, have seen improvements in performance through continuous development, making them suitable for mainstream mass-market vehicles. The use of LFP batteries has surged globally, with nearly half of the EV battery market being comprised of LFP batteries.
While the U.S. is slowly catching up in battery manufacturing capacity, the future remains uncertain due to potential changes in policies. Tax credits that have incentivized growth in the sector could be eliminated, impacting the competitiveness of American battery manufacturers in the global market. The global battery boom is here to stay, but the extent to which the U.S. will participate in it hinges on future policy decisions.
In conclusion, the evolution of battery technology and manufacturing is pivotal in shaping the future of electric vehicles. As prices continue to decrease and innovation accelerates, the transition to a zero-emission transportation system becomes more achievable. The full potential of this transformation will depend on continued investment, technological advancements, and supportive policies in the battery industry.