The battery industry has witnessed its largest decline in prices since 2018, but the reasons behind this drop differ from previous years. Unlike past reductions predominantly driven by technological advancements, the price decrease in 2023 is primarily due to lower raw material costs, especially lithium. This decline results from increased production capacity across the battery value chain, spanning raw materials to battery cells and packs.
Influence of Market Dynamics
The slowing growth rate in battery demand in the latter half of the year, influenced by rising borrowing costs and economic uncertainties, has also contributed to the price drop. China’s battery production surpassing global demand signals an oversupply in the market. Additionally, the utilization rate at major battery cell manufacturing plants was lower than in the previous year, aligning with some automakers scaling back their targets.
Sector-Specific Price Variations
Prices vary across sectors, with electric buses and commercial vehicles in China experiencing the lowest battery pack prices at $100/kWh. In contrast, the average price for fully electric passenger vehicles is around $128/kWh. This convergence of battery prices across sectors indicates industry maturation and growth, with variations attributed to factors like sector maturity, order volumes, and design requirements.
Future Projections and Regional Differences
BNEF’s energy storage team anticipates future prices to closely follow raw material cost trends, projecting a decrease to $133/kWh in 2023 terms by next year. By 2027, prices are expected to fall below $100/kWh, a significant benchmark for EVs to reach price parity with internal combustion engine vehicles. However, achieving price parity is complex and varies by region and vehicle segment, with factors like battery size and vehicle type playing crucial roles.
Impact of Regional Manufacturing and Policies
The localization of battery manufacturing in the US and Europe may initially raise local battery prices due to higher production costs and market immaturity compared to Asia. However, local policies, such as the US’s Inflation Reduction Act, could mitigate these costs. While battery prices have historically followed a downward trend, the industry must navigate fluctuating input costs and market dynamics, emphasizing the need for ongoing capacity expansion, research, and manufacturing improvements. 
