Why electric car batteries are so expensive, for now

By Bloomberg Time of article published Jan 4, 2022

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San Francisco - At Tesla's ballyhooed Battery Day event in 2020, CEO Elon Musk set himself an ambitious target: to produce a $25 000 (R400 000) electric vehicle within three years.

Hitting that sticker price - about $15 000 (R240 000) cheaper than the company's least expensive Model 3 sedan costs today - is seen as critical to delivering a truly mass-market product. Getting there means finding new savings on technology - most critically in the batteries that make up a big part of an EV's cost - without compromising safety.

Alongside Musk, traditional carmaking giants, including Toyota and Volkswagen, are pouring tens of billions of dollars into the race.

1. Why are EV batteries so expensive?

Largely because of what goes in them. An EV uses the same rechargeable lithium-ion batteries that are in your laptop or mobile phone, they're just much bigger. The cells are grouped in packs resembling big suitcases.

The priciest component in each battery cell is the cathode, one of the two electrodes that store and release electricity. The materials needed in cathodes to pack in more energy are often expensive: metals including cobalt, nickel, lithium and manganese. They need to be mined and processed into high-purity chemical compounds.

2. How much are we talking?

At current rates and pack sizes, the average battery cost for a typical EV works out to about $6300 (approx R100 000), though the ones that go into premium models are more. Battery pack prices have come down a lot - 89% over the past decade, according to BloombergNEF.

But the industry average price of $137 for a kilowatt of power for an hour (from about $1,191 in 2010) is still above the $100 threshold at an EV's cost should match a car with an internal-combustion engine.

Costs aren't expected to keep falling as quickly, and rising raw materials prices haven't helped. Still, lithium-ion packs are on track to drop to $92 per kWh by 2024, according to BNEF forecasts, and $58 per kwh by 2030.

3. How will the batteries get cheaper?

One option is to substitute cobalt with nickel, which is cheaper and holds more energy. Doing so isn't simple, however, as cobalt's advantage is that it doesn't overheat or catch fire easily.

Another move has been to use low-cost lithium iron phosphate as the cathode material. Such cells were once derided for poorer performance but are having a revival as design changes deliver improvements. Simplifying battery pack design, and using a standard product for a range of vehicles - rather than a pack tailored to each model - would deliver additional savings.

4. What about fire risks?

Lithium-ion batteries, whether used in grid-sized storage facilities, cars or devices like smartphones, can catch fire if they've been manufactured poorly, damaged in an accident, or the software that runs them hasn't been designed properly. Incidents remain rare, but garner huge scrutiny in what remains a developing sector.

A decision in August by General Motors to carry out a recall of more than 100 000 Chevrolet Bolt models as a result of EV battery defects underscored the seriousness. And the blazes aren't easy to extinguish; it took firefighters four hours and more than 113 60 liters) of water to douse a Tesla Model S after a fatal crash in Texas.

Tesla insists that incidents involving electric models attract undue attention. According to its 2020 Impact Report, in the eight years prior there was about one Tesla fire for every 330 million kilometers traveled, compared to a fire every 30 000km for conventional vehicles.

5. Are EV batteries all the same?

They have the same basic components: two electrodes - a cathode and an anode - and an electrolyte that helps shuttle the charge between them. But there are differences in the materials used, and that's key to the amount of energy they hold. Grid-storage systems or vehicles travelling short distances can use cheaper and less powerful cathode chemistry that combines lithium, iron and phosphate, called LFP batteries.

Tesla said in October that it would shift to those for its standard-range cars as their performance improves. For higher-performance vehicles, carmakers favour more energy-dense materials, such as lithium-nickel-manganese-cobalt oxide or lithium-nickel-cobalt-aluminum oxide.

6. Is cost the only hurdle to mass adoption?

There's still an issue with so-called range anxiety. While the most-expensive EVs can travel 800km or more before a top up, budget models like the Bolt generally are lucky to go half that distance, leaving consumers anxious about how often they'll need to recharge.

Carmakers and governments have become directly involved in the roll-out of public recharging infrastructure for drivers on the road. However, most recharging is expected to take place at home, and that means another cost for consumers. While the average price of a home-charging kit has fallen 18% since 2017 to about $650 (R10 000), some top-of-the-line bi-directional chargers (which let you send energy from the vehicle to the home or grid), cost more than $6000 (R96 000). Installation costs in the US can run from as little as $400 (R6400) to more than $3300 (R52 000).

7. What's around the corner?

Most keenly anticipated is the arrival of solid-state batteries, which replace the flammable liquids that enable charging and discharging with ceramics, glass or polymers. That makes them safer, smaller and quicker to charge.

QuantumScape Corp. says it has innovations in that field to increase a car's range by as much as 50% and the technology could be deployed in vehicles at dealerships as soon as 2026. Another industry focus is modifying anodes - typically made using graphite - to add more silicon, or by using lithium metal. That would likely make it viable to power smaller aircraft, helping the aviation industry to reduce its carbon emissions.

8. Who are the biggest manufacturers?

Asia dominates manufacturing of lithium-ion cells, accounting for more than 80% of existing capacity. The Chinese company Contemporary Amperex Technology CATL shipped the highest volume in 2020, capturing almost a quarter of the market. By September this year it had extended its lead to 30%, followed by South Korea-based LG Energy Solution and Japan's Panasonic. Tesla and Panasonic's joint venture is the biggest battery producer in the US. Emerging producers include Northvolt in Sweden, founded by former Tesla executives, and Gotion High-tech in China.

9. So China's in pole position?

Yes, in almost every aspect. China is responsible for about 80% of the chemical refining that converts lithium, cobalt and other raw materials into battery ingredients, though the metals themselves are largely mined in Australia, the Democratic Republic of Congo and Chile.

China also dominates processing capacity across four key battery components (cathodes, anodes, electrolyte solutions and separators), with more than half of the world's commissioned capacity for each, BNEF data shows. It faces a challenge when it comes to advanced semiconductor design and software, components that are increasingly important as cars become more intelligent. Less than 5% of automotive chips are made in China, according to the China Association of Automobile Manufacturers. The U.S., Germany and Sweden are among countries investing rapidly in battery supply chains.

Bloomberg

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