Lithium Price Drop Raises Hopes of EVs Becoming More Affordable in India
The Indian EV sector heavily relies on lithium-based batteries
Lithium carbonate prices, the primary component used in batteries, have seen a considerable drop over the last couple of months, raising hopes among industry stakeholders that affordable electric vehicles (EVs) would attract more customers to the segment.
The price of the key ingredient has dropped from ~$73,000 per mt in January to ~$34,000 per mt in March. The costs for cobalt and nickel, other components widely used in batteries, have also dropped significantly over the last two months.
Most stakeholders claim that the price drop is due to more of the rare metal being mined.
A steep decline in EV sales in leading markets like Europe and China due to the expiration of government subsidies is one possible reason for this sharp decline.
However, Ankit Mittal, Co-Founder and CEO at Sheru, an energy storage company, said that the drop in lithium prices can be attributed to the decline in EV demand in China, where the subsidies have been withdrawn. He did not rule out the possibility of the prices rebounding once EV demand rises.
The addition of new refining capacities globally and alternative battery technologies have also led to a significant price drop in the otherwise expensive raw material.
Akshay Singhal, Founder & CEO of Log9 Materials, a battery technology company, said, “The surge of supply in comparison to demand is one of the leading causes of the price drop of the metals used in manufacturing the EV battery. A lot of capital has been infused into new lithium mining operations and cathode materials processing plants, though mostly by China. Trends in cobalt prices are more to do with the global shift to reduce the amount of cobalt going into batteries and even completely move away from it. The other factor is the geopolitical situation due to which the prices have dropped.”
However, there might be no direct correlation between declining prices in raw materials and EVs.
Mittal said that the recent price decline resulted from a massive rally that started in mid-2022 and saw prices rise by 550% over 1.5 years.
“This rally had squeezed the margins of automakers, who could not fully pass on the increase in cost to consumers, as it would negatively impact sales. Hence, we do not think the current drop in raw materials prices would be immediately reflected in EV prices. We might only see a drop if raw materials costs stabilize around current levels for some time,” Mittal said.
Singhal agreed that EV prices might not see an immediate and commensurate decline because battery pack manufacturers or vehicle manufacturers in India do not have any control over the material supply chains, and the cell procurement contracts are not linked to the base material prices.
He added, “It will take six to seven months for Indian manufacturers to witness the impact of this price reduction as the extracted cheaper metals will go to the cell manufacturers, and then the Indian battery makers will be able to procure it, that also if the prices remain where they are.”
India recorded a sale of one million EV units in 2022 alone, a record increase of 300% year-over-year. EVs accounted for 4.7% of overall automobile sales in the country.
Lithium Prices to Continue Trending Down
Some stakeholders said that lithium prices are likely to remain subdued as the underlying reasons are likely to sustain, which would eventually show up in the lower EV prices.
Reports suggest that CATL, one of the largest battery manufacturers, has started offering discounts, helping EV manufacturers procure parts cheaper. As a result, many leading manufacturers like Tesla and Ford have begun slashing their electric vehicle prices.
Kalyan C Korimerla, MD, and Co-Promoter, Etrio, an EV company, said that the price decline was primarily due to a glut in raw material supplies.
“We expect the prices to continue to drop in the next 12 months due to the growing lithium supply and moderate weakening of the Chinese EV market. In addition, global EV makers have been rushing to secure raw materials over the past two years, which drove the price of lithium carbonate more than sixfold. With the supply coming online faster than ever, we expect lithium prices to drop,” Korimerla added.
In the long run, the recent discovery of lithium deposits in places like Jammu and Kashmir and cobalt deposits elsewhere will likely result in reduced battery prices. “This will help boost the production of electric vehicles and augment the EV sales in India & other parts of the world,” Korimerla said.
India’s recent lithium discovery is estimated to be 5.9 million tons, substantially larger than the cumulative lithium requirement over the next 20 or so years.
A report by BloombergNEF in December last year noted the price of lithium-ion battery packs increased for the first time since 2010 to $151/kWh in 2022. However, the report also claims that battery prices will start dropping again in 2024 when lithium prices are expected to ease as more extraction and refining capacity come online. The report predicts average pack prices to fall to as low as below $100/kWh by 2026.
Alternatives to Lithium
The highly priced metal over time has dominated the battery sector; however, industries worldwide have been developing various alternatives to lithium-ion batteries to make EV and battery storage options more affordable.
Mittal said, “In the short term, at least until the latter half of the decade, we expect lithium-based batteries to dominate in EVs. They are still on the learning curve and see constant efficiency gains, leading to cheaper EVs with better ranges and more safety. However, several promising battery chemistries are in the development stage. Sodium-based ones might be the leader in this regard as they offer advantages over Li-ion in numerous aspects while being based on a raw material that is much more abundant.”
Singhal feels other technologies are still in their infancy, and much more work is needed before they see commercial applications. “The other technology alternatives for lithium-based batteries in the market are Metal-Air Batteries, Sodium-based Batteries, and Redox Flow Batteries. These are fundamentally more cost-effective due to the lower cost of materials required. However, the technologies are still in the nascent phase and need maturity. Also, in many such cases, the EV use case is challenging due to either lower charge-discharge capabilities or lower energy density or lower cycle efficiency.”
While the industry seeks alternatives, it is clear that lithium-based batteries will continue to dominate the market in the near future. The recent lithium discovery in India has raised hopes that the market might see a shift from China, cutting down the dependency in the long term, but it would take time for mining to begin.
A recent study by the Berkeley Lab found that most of the 2 million tons of lithium needed by 2040 for manufacturing new EV and grid-scale battery storage systems could be produced domestically in India using newly discovered reserves. The study suggests that the discovery, along with deep cost reductions in clean technology, can enable a pathway for cost-effective energy independence by 2047.
The price drop in lithium carbonate is definitely seen as a relief for the market, often perceived as highly priced, with the hope that it would help boost EV adoption further.