[Bojo, Battery] Is Price Decline Necessarily Poison for Battery Companies?

Editor's Note'Bojo, Battery' is a series that takes a closer look at the battery industry, which has emerged as the center of next-generation advanced industries. It examines the agile movements, strategies, and conflicts among governments and companies worldwide vying to dominate the battery manufacturing ecosystem. We will also cover the technological competition to create safer and longer-lasting batteries. Our aim is to provide a 'support' function that enhances and assists readers' and investors' understanding of the battery industry. We will share battery stories that are easy to approach.

The decline in battery prices continues relentlessly. Last year, battery prices soared due to rising raw material costs and strong electric vehicle sales, but this year, prices have continued to fall without any significant rebound. Concerns are growing that the falling battery prices could hurt the earnings of companies. However, there is also analysis suggesting that the price decline does not necessarily act as a negative factor for battery cell and material companies.

Battery Cell and Material Prices Fall Together... Concerns Over Earnings Damage

According to export data from the Korea Customs Service, the export price of domestic NCM (Nickel-Cobalt-Manganese) cathode materials in the third quarter (July-August) of this year was $41.7 per kWh (approximately 55,836 KRW). This is about a 14.8% decrease compared to $48.98 per kWh (approximately 65,584 KRW) during the same period last year. Compared to the first quarter of this year, when cathode material prices were at their highest in the past two years at $51.11 per kWh (approximately 68,436 KRW), prices have dropped by 18.4%.

As the cost of cathode materials, which account for more than 40% of battery costs, has fallen, battery cell prices have also dropped by more than 30% compared to last year's peak. Last year, battery cell prices were around $151 per kWh (approximately 202,113 KRW), but as of August this year, battery cell prices stood at about $98.2 per kWh (approximately 131,440 KRW). (Benchmark Mineral Intelligence data)

Raw material prices such as lithium and nickel, which surged after the Russia-Ukraine war, have recently stabilized and declined. Consequently, the prices of battery materials and cells linked to raw material costs are falling. There are concerns that batteries made with raw materials purchased at high prices during the price surge are now being sold cheaply. Some even question the market growth amid the battery price decline. But is the price drop truly a poison that only hinders the growth of the battery industry?

Battery Cost Reduction Through Economies of Scale and Production Technology Improvements... 42% Price Drop Expected by 2030 Compared to Now

First, the battery price decline is a 'foreseen future.' Battery prices can be predicted using 'Wright's Law,' which states that the manufacturing cost and product price decrease by a certain percentage each time the cumulative production volume doubles. As production volume increases, unit production costs decrease due to 'economies of scale,' and manufacturing costs can be lowered through improved production technology. Although the rate of cost reduction varies by product, prices generally fall by about 15-20% each time cumulative production doubles.

The global cumulative battery production reached 3.173 TWh (terawatt-hours) by last year. Based on last year, the points at which cumulative production doubles are projected to be 2024 (8.44 TWh), 2026 (20.46 TWh), and 2029 (49.04 TWh). The U.S. investment firm Ark Invest estimates that battery prices fall by 28% each time cumulative production doubles. A 2021 empirical analysis paper from MIT on battery price declines found that battery prices drop by about 20% each time cumulative production doubles. Battery prices (pack basis) are expected to fall from $152 per kWh this year to $144 next year, $117 in 2026, $92 in 2029, and down to $87 by 2030.

In reality, battery companies' production capacities are continuously improving. SK On's battery plant in Hungary produced 1.5 GWh per production line annually at its first plant, which began operations in 2020, but the second plant, which started last year, produces 1.7 GWh per line. The third plant, scheduled to begin operations in 2024, is expected to produce 2.5 GWh per line. (Samsung Securities report)

The price decline accelerates the popularization of electric vehicles. As battery costs, which account for 40% of electric vehicle manufacturing costs, fall, electric vehicle prices also decrease. In fact, Tesla, the world's leading electric vehicle manufacturer, has been lowering prices consecutively since the end of last year. Despite subsidies for electric vehicles due to their high prices, entry barriers remain high. If electric vehicles become cheaper than internal combustion engine vehicles, the adoption rate of electric vehicles will accelerate further. Increased demand for electric vehicles will lead to more battery sales, ultimately benefiting battery companies' earnings. Energy analysis firm Benchmark Mineral Intelligence reports that if battery pack prices fall below $100 per kWh, electric vehicles could become cheaper than internal combustion engine vehicles. From 2029, battery pack prices are expected to be around $92, making electric vehicles more affordable than internal combustion vehicles.

However, the recent battery price decline is mainly due to China's oversupply of batteries and the sharp drop in raw material prices. In the short term, the gap between production costs and selling prices may burden battery companies. This raw material price decline is expected to continue into next year. Professor Kim Pil-su of the Department of Automotive Engineering at Daelim University commented, "Companies that secure stable raw material supply chains and efficient production technologies will ultimately overcome short-term burdens and survive to benefit from the era of electric vehicle popularization."

This content was produced with the assistance of AI translation services.