Soaring Battery Prices Don't Dampen Demand For Electric Vehicles

Buyers around the world are lining up to purchase electric vehicles this year even with prices surging, flipping the script on a decade and a half of conventional auto industry wisdom that EV sales would break out only after battery costs dropped below a threshold that was always just over the horizon, Paul Lienert and Nick Caret reported for Reuters.

Photo Insert: Costs rose due to supply chain disruptions, sanctions on Russian metals, and investor speculation.

This year, EV demand has stayed strong even as the average cost of lithium-ion battery cells soared to an estimated $160 per kilowatt-hour in the first quarter from $105 last year. Costs rose due to supply chain disruptions, sanctions on Russian metals, and investor speculation.

For a smaller vehicle like the Hongguang Mini, the best-selling EV in China, the higher battery costs added almost $1,500, equal to 30% of the sticker price.

But gasoline and diesel fuel costs for internal combustion vehicles have also skyrocketed since Russia invaded Ukraine, and experts noted that environmental concerns also are pushing more buyers to choose EVs despite the volatile economics.

Manufacturers from Tesla to SAIC-GM-Wuling, which makes the Hongguang Mini, have passed higher costs on to consumers with double-digit price increases for EVs.

More may be coming. Andy Palmer, chairman of Slovak EV battery maker InoBat, says margins in the battery industry are already wafer-thin, so "rising costs will have to be passed onto carmakers."

Vehicle manufacturers like Mercedes-Benz will likely shift increases to customers if their raw material prices keep rising.

"We need to keep margins," Chief Technology Officer Markus Schaefer told Reuters. But EV shoppers have so far not been deterred. Global EV sales in the first quarter jumped nearly 120%, according to estimates by EV-volumes.com. China’s Nio, Xpeng, and Li Auto delivered record EV sales in March. Tesla delivered a record 310,000 EVs in the first quarter.

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