Battery prices plummet in China, same will happen in Europe

On paper, the electric car's recipe for success is simple: to sell, a battery-powered car has to be economically competitive with its petrol-powered competitor, and to do that, batteries have to cost less and less.

The good news is that this is indeed the case. According to a report published by Bloomberg, the cost of a lithium-iron-phosphate battery will be 51% lower in 2024 than in 2023. This is at least what has happened in China, where lithium-iron-phosphate cells have an average price of $53/kWh, compared with $95/kWh previously.

Falling prices and demand

The main reason why the price of LFP batteries in China has fallen so much is that the cost of the raw materials used for the cathode, which is the most expensive component of a battery, has been reduced. At the beginning of 2024, it cost 50% less than the previous year. Today, it is only 30%.

A second factor has also driven down the price of batteries: demand. Chinese Gigafactories produced 51% of their maximum battery capacity in 2022. By 2023, this had fallen to 43%. This is because demand for electric cars around the world has fallen, and the drop in demand is forcing manufacturers to revise prices downwards.

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Price parity is close everywhere

In terms of batteries as a whole, it is currently calculated that a battery with LFP chemistry costs an average of $75/kWh. In fact, electric cars equipped with this technology have already reached price parity with combustion engine cars. In fact, two-thirds of zero-emission vehicles sold in China cost less than their petrol counterparts.

But that's what's happening in the Land of the Dragon. In the rest of the world, where conditions and technologies are different, LFP batteries are much less common than nickel-manganese-cobalt.

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However, China is showing a way forward that will also be followed by other markets, led by the US and Europe. In fact, analysts believe that raw material prices will remain low for a long time, leading battery manufacturers to bring increasingly affordable products to market. This will lead to increased demand for electric cars in the future, triggering a virtuous mechanism in which economies of scale and greater sharing of components will contribute to the spread of new mobility.

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