A price war is brewing for batteries that could soon make electric cars cheaper. Here’s how

The main cost of an electric vehicle (EV) is the battery. The high cost of energy-dense batteries has meant that electric vehicles have long been more expensive than their fossil fuel equivalents.

But this could change faster than we thought. The world’s largest maker of electric car batteries, China’s CATL, claims it will cut the cost of its batteries by as much as 50% this year as a price war breaks out with China’s second-largest manufacturer, BYD subsidiary FinDreams.

What’s behind this? After experiencing a meteoric rise in 2022, the electric car industry has faced headwinds. Growth increased faster than demand, prompting efforts to reduce costs.

But the promised price cuts are also a sign of progress. Researchers have made great strides in finding new battery chemistries. CATL and BYD are now making EV batteries without cobalt, an expensive, scarce metal linked to child labor and dangerous mining practices in the Democratic Republic of Congo.

Economies of scale and new lithium supplies make it possible to sell batteries cheaper. And the world’s largest automaker, Toyota, is pinning its hopes on solid-state batteries in the hope that these energy-dense, virtually fireproof batteries will enable electric cars with a range of more than 750 miles per charge.

How do battery manufacturers save on costs?

The largest market for electric and plug-in hybrid vehicles is China. But demand for electric vehicles has declined here, from a 96% increase in demand in 2022 to a 36% increase in 2023.

As a result, battery giant CATL has seen its profits fall for the first time in almost two years.

One of the best ways to create more demand is to make your products cheaper. That’s the reason behind CATL and BYD’s cost-saving promises.

You may wonder how that is possible. One of the main challenges in the transition to battery-electric cars is where the raw materials can come from. The electric future relies on viable supply chains for critical minerals such as lithium, nickel, copper, cobalt and rare earth elements.

Until recently, the main chemistry of EV batteries was based on four of these: lithium, nickel, manganese and cobalt. These are also called NMC batteries.

battery of electric car
These types of battery packs make electric cars possible.
Roman Zaiets/Shutterstock

If you can avoid or minimize the use of expensive or controversial minerals, you can save costs. That’s why Chinese companies like CATL have virtually monopolized the market for another chemical, lithium iron phosphate (LFP) batteries. These batteries are cheaper because they do not contain cobalt. They also have other advantages: a longer useful life and less risk of fire than traditional lithium batteries. The disadvantage is that they have lower capacity and voltage.

The recent price reductions stem from a conscious decision to use abundant earth materials such as iron and phosphorus where possible.

What about lithium? Prices of lithium carbonate, the salt form of the ultra-light silvery-white metal, rose sixfold in China between 2020 and 2022 before falling last year.

Despite this, battery prices have continued to fall – just not as much as they otherwise would have.

The world’s huge demand for lithium has led to a surge in supply as miners rush to find new sources. For example, CATL is spending $2.1 billion on lithium extraction plants in Bolivia.

Lithium supply growth is expected to exceed demand by 34% both this year and next, which should help stabilize battery prices.

salt flats of Bolivia
Bolivia’s salt flats are a rich source of lithium, although its extraction is fraught with environmental problems.

The number of battery options is increasing

China’s battery makers have cornered the lithium iron phosphate battery market. But they’re not the only game in town.

Tesla electric cars have long been powered by batteries from Japan’s Panasonic and South Korea’s LG. These batteries are built on the older but established NMC and lithium nickel cobalt aluminate oxide (NCA) chemistry. Yet the American automaker now uses CATL’s LFP batteries in its lower-priced cars.

The world’s largest automaker, Toyota, has long been skeptical of lithium-ion batteries and has focused instead on hybrid and hydrogen fuel cell vehicles.

But this is changing. Toyota is now focusing heavily on realizing solid-state batteries. These use liquid electrolytes to transport electricity, in favor of a solid battery. In September last year, the company announced a breakthrough that it says will enable faster charging times and a range of 750 miles before charging. If these claims are true, these batteries would effectively double the range of today’s top-end EVs.

Read also: Gasoline, prices and parking: why so many suburbanites are choosing electric vehicles

In response, Chinese battery makers and the government are working to overtake Toyota in solid-state batteries.

Which battery chemistry will win? It is still too early to say anything about electric vehicles. But as the green transition continues, we will likely need not just one, but many options.

After all, the energy needs of a tractor will be different from those of urban electric vehicles. And as electric planes move from dream to reality, they will need different batteries. To get battery-electric aircraft off the ground, you need batteries with enormous power density.

The good news? These are technical challenges that can be overcome. Last year, CATL announced a groundbreaking condensed matter battery for electric aircraft, with up to three times the energy density of an average electric car battery.

In the meantime, researchers are pushing the boundaries even further. A good electric car can have a battery with an energy density of 150 to 250 watt hours per kilogram. But the record in the laboratory is now above 700 watt hours/kg.

This is to say nothing of the research focusing on other battery chemistries, from sodium ions to iron-air batteries to liquid metal batteries.

In short, we are still at the beginning of the battery revolution.

Read also: How sodium-ion batteries can make electric cars cheaper

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