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Journalist Markham Hislop interviews leading energy experts from around the world about the energy transition and climate change.
Welcome to episode 372 of the Energy Talks podcast. I'm energy journalist, Markham Hislop. One of the most interesting 2024 clean energy story is the rapid decline of battery prices. China CATL, the world's biggest battery maker with 37% of the market, promised last year that it would cut lithium ion phosphate battery cell, prices by half this year. Well, by June, they had fallen to just $53 per kilowatt hour.
Markham:Goldman Sachs is forecasting that by 2026, EV battery pack prices will fall to $80 per kilowatt hour. The point at which EVs are the same price as gasoline cars. By 2030, the price will be $60. And installation of batteries for power grids is going through the roof everywhere. What's behind the sudden drop in battery prices?
Markham:And are forecasts of continued declines credible? To answer these questions, I'm joined by doctor Alex Holland, research director at UK bay based IDTechX and author of the new report, lithium ion battery market 2025 to 2035, technologies, players, applications, outlooks, and forecasts. Welcome back to Energy Talks, Alex.
Alex:Thanks for having me.
Markham:This is really interesting. Be I mean, I hear batteries being described all the time as the heartbeat of the energy transition. They're at the the core because they are integral to electrification of transportation, not just cars and trucks, but buses. And and we've had, your I've had some of your colleagues on here talking about things like construction equipment, you know, diggers and excavators, what have you. And batteries are also central to the reengineering of power grids in order to integrate more renewables.
Markham:And so there would seem to be, as we electrify, this enormous demand for batteries, and the industry seems to be keeping up. Maybe just can we start with, an overview of where the battery industry is currently?
Alex:Yeah. I mean, I think you gave a great introduction there. Obviously, batteries, when we talk about batteries, I think we'll be focusing on lithium ion, a specific type of of battery technology, which is really underpinned kind of EV battery technology, helping you to electrify electric vehicles, electric cars. It's important to note that electric cars account for the majority of battery demand at the moment are expected to account for the majority of battery demand going forward. But that doesn't mean, obviously, these are the areas that you touched on, other vehicle types, but also stage storage applications, which help to integrate more variable renewable power sources onto electricity grids, are still super important, markets for for the battery sector.
Alex:And we've seen huge growth, in the EV sector over the past 10 to 15 years. And slightly more recently, we're starting to see some of that same growth happening within the stationary storage sector, as well.
Markham:Maybe you could help me to understand and my listeners to understand something that, is at the core of this movement. Well, movement is not the right word, but the core of this trend. And and that is what's going on in China Because China has pursued a very interesting clean energy industrial policy for 20 years. And what it does is it pours support into a particular industry. It helps it that industry scale up, and then it creates a condition of really intense competition.
Markham:You know, there there were at 1 point 700 Chinese EV makers, and now they're down to they were recently, anyway, down to a 100. And the the betting is that they'll be down to 12 by the time this all shakes out in in a few years. And something's kind of been happening the the same kind of thing happened in the in the battery industry, and they build up this enormous capacity. You know, right now, far more than the the global market can can absorb, and that drives down prices. And then the Chinese firms, they go looking for export markets.
Markham:They compete, they try to drive out of business existing manufacturers, and it seems to me that what China is doing has now provoked a response from the Americans and the Europeans, but they're not gonna slow down, which means all we're going to be we're seeing over the next little while, from my point of view, is more and more battery capacity, which argues for more and more or lower and lower global prices. Is that a reasonable way to look at this?
Alex:Broadly speaking, yes. I think you're absolutely right. Historically, China has looked at the battery industry strategically, in a number of different ways, both in supporting companies within China, in bringing in expertise as well and training, staff and and labor. But, ultimately, you've also got this huge domestic internal market. And certainly during those those early years, there were, rules on, who could supply within China, which made it far more favorable for for Chinese companies.
Alex:And all of this helped to to develop the the Chinese battery, an EV industry. But, also, you know, off the back of that, we can't deny the the prowess, and innovation that's going on within some of these these leading Chinese companies. Sure. There has been, you know, some favorable conditions for them certainly in in years gone by, but but some of those leading companies within China at the moment, are some of the, you know, the leading companies in the world, the leading manufacturers, globally because of their ability to produce at scale, to produce at low cost, and to keep bringing new new, battery materials or battery pack designs. They they keep demonstrating that ability to to do that.
Alex:And as you say, there's there's there is a pretty significant amount of of overcapacity almost, throughout the the industry, especially in China, which is helping to to push to push prices down. So if you are a relatively nascent industry within Europe or the US, you're going to be competing with those ultimately lower prices, and that's going to make it relatively difficult unless you have that financial backing and that financial, clout behind you.
Markham:I interviewed doctor Kai Philip Karies of, a Cure, I think it's Cure Battery Intelligence, out of Germany, a few months ago. And he made the point that CATL is so dominant in the industry that when CATL says it will do something, take it at its word because it it has all the capabilities you're talking about. Yeah. It has enormous clout in this sector, and CATL is talking about bringing in, you know, solid state batteries fairly quickly. They're talking about, they they forecast last year last I think it was last June, they said, you know, batteries are gonna be at they're at a a hundred and something now, and we're gonna bring them down by half, and they did.
Markham:They actually achieved that within 12 months. It was quite astonishing. How important is CATL to the short term short to medium term growth of this industry?
Alex:Yeah. I mean, you don't wanna put it all on, one specific company. Of course, over the past year, we've had, you know, continued declines in in raw material prices, which are going to play an important role in some of the the battery prices that we're seeing today. As I mentioned, there is a, you know, a lot of competition in the market at the moment, which again helps to to bring those prices down. But, certainly, you can't look past CATL as one of those leaders.
Alex:I would I would still have a a level of skepticism whenever we talk about the next big technology, whether it's solid state condensed matter if you're CATL, whether it's silicon anodes. Whatever it may be, I think some level of skepticism is is still warranted and important for for the industry, for the battery industry in particular, moving forward. But, obviously, CATL holding, you know, the the 30 plus percent market share or there or thereabouts that they do have with regards to, you know, gigawatt hours of batteries deployed, they obviously are a very important part of the the global, battery industry. And so what happens at CATL, obviously, very important to to how the industry as a whole is is performing.
Markham:Well, let's talk about material prices. There are 4 important components that you point out in your report. Mhmm. Lithium, nickel, cobalt, and manganese. Those prices for those minerals spiked in 2022, but have come down considerably in by 2024, more than half of what they were were previously.
Markham:And these have become these are commodities that are we gonna see a lot of fluctuation? I mean, what's the the outlook for the next little while for, battery material costs?
Alex:Sure. So I suppose, I mean, I think firstly, I would say is there it's arguable as to whether some of these materials can be considered commodities because there are such high requirements on, purities and impurities within some of these, materials, hydroxides, carbonates, sulfates. So if you're being supplied from one supply with one level of impurity, that that creates different requirements from where you where you get your supply elsewhere. So it's it's it's questionable as to whether they can be, considered, commodities at the moment. In terms of future future pricing, obviously, there there are so many kind of different factors at play.
Alex:Within ID TechX, we kind of just taking lithium as an example, we see broadly the right amount of capacity coming online, compared to our own kind of demand forecasts, but, certainly, prices at the moment are very low, relatively low compared to the last 2, 3 years, certainly. And so there may be some expectation that they they want to rise, but I think it's difficult to pinpoint exactly where those, you know, material prices might go. And part of that, of course, relies on demand for for battery, gigawatt hours of batteries and EVs and stationary storage systems. And, as I'm sure you're aware, there has been some, you know, negative, negativity and some negative sentiment as to where that demand might go in the in the short term, although it's important to note that these markets are still growing. And and a lot of the time, we compare them to 2023, 2022, where you had these really quite quite significant growth rates in the market.
Alex:So obviously a lot of factors that that go into, where raw material prices might go, in the future.
Markham:You've got a a chart in your report that shows that metal contribution to sell material cost. And right now, it's down around in 21, $22. So are is it reasonable to expect that, you know, those prices can't drop much further?
Alex:Yeah. I think so. Actually, they probably have since that that graph was was put together, actually, kind of representative of the earlier in 2024. I think what's kind of, obviously, the important takeaway is just to see how far those material cost contributions. This is, in relation to, an NMC 8.1 cell and the cathode material in particular, how far they've dropped since, as you mentioned, 2022.
Alex:And that's kind of been a big driver behind why we're seeing some of the low cell and battery prices we are today. But it also goes to highlight some of the difficulty and some of the the comments he made early with respects to the US and Europe trying to to compete. And that, actually, when you look at the the cathode material prices themselves, that doesn't leave you with a lot of a lot of room for for profit margin, ultimately. And so you've seen the margins of these, in this case, cathode manufacturers come down significantly the past year or 2, and certainly kind of, if if you want to maintain market share and be competitive on your pricing, that's something you may have to to manage in the short term. But just, I think that that graph highlights here how much those raw material prices have come down, over the past 2 years, but also some of the difficulty that you'll have in terms of of maintaining profitability if you're offering the cathodes at the prices you today, versus what the cost of those raw materials raw materials are.
Markham:Now the next thing we're gonna discuss is the competitive market. And this is very interesting because China dominates so much of the supply chain for for batteries. And now the, the Americans and the Europeans are trying to stimulate battery plant. Harder in Europe, we've seen some struggles with, like, with Northvolt. But on the other hand, the Americans are building battery plants as fast as they can, get get them constructed.
Markham:How is that all going to shake out, do you think, in the global battery industry?
Alex:Sure. So it's a really interesting, obviously, space to to look at and to keep tabs on. As you mentioned in the US, I mean, if you'd have done this analysis pre the Inflation Reduction Act, there wouldn't have been quite as much, cell manufacturing capacity by gigawatt or gigawatt gigafactories, coming online through to 2030 compared to Europe. But since the the IRA and the, you know, the the credits that are off there up to $35 per kilowatt hour for for sales manufactured in the US and that meet those rules, that makes the US a really attractive place to invest. And so you've got these typically, at least, you've got these these partnerships, all these major Asian manufacturers from Korea, and Japan starting to to try and build and starting actually to to build those those factories and those facilities, in the US.
Alex:I think where that differs from Europe is you have a few more, newer entrants and you don't have quite that. So you've got kind of companies trying to build up from from scratch almost for a once a better word. That's not not quite not quite accurate. But whereas in the US, you have these these huge companies who have had this experience, over many years of of building these facilities, of operating them, of of manufacturing these cells. You don't quite have that, in Europe to the same extent at least.
Alex:And so that's where some of that struggling Europe has has potentially come over the past over the past year. That's come to light over the past year. But, ultimately, some diversification of the supply chain is is, I think, certainly important. Certainly, I think we've all come to to grips with that post post COVID. But it will remain very interesting to see whether whether these these new companies in particular, but slightly lesser extent, these new facilities can compete with with with the numbers that we're seeing coming out of of Asia and China in particular.
Markham:Well, you've mentioned the, the IRA as a a driver of the industry in the United States, And I've had a number of, American guests on the on the podcast, and very interesting, we we spent some time discussing the importance of the innovation ecosystem to the development of various parts of clean energy manufacturing industries. And the American guests are fairly confident that while China might have a significant lead at the moment, because they've scaled up, they 1st to market, they they they're just so dominant now. But over time, that the US superior ability to innovate might help the USA catch up Mhmm. To China. And I'm I'm just curious what your take is on that.
Alex:So I think there are there are 2 things to note maybe that come to mind immediately for for me. The first is that, I think the sentiment is probably along the right lines in that. You might not want to compete like for like, effectively, and you might try and look to the next generation of technology that's maybe better suited to to US consumers, European consumers anyway. And so you have various innovations, you know, talking going from solid state batteries to to silicon anodes where you've got a lot of kind of interest in the US to, maybe, you know, lithium Manganese, Iron Phosphate, for example, all the way through to anything on the on the battery pack. And so, yes, it may be necessary to innovate there or innovate the manufacturing process, and that will help help these other regions, the US, Europe, compete with what's coming out of, of China.
Alex:The second thing to note there is that, as you mentioned earlier, this China isn't standing still. These these large companies in Asia aren't standing still. They're innovating. You know, you can look at things like sodium ion, as an example where they've again taken the lead in trying to start developing that technology and starting to commercialize and deploy that technology. So I think you have to be cautious in relying solely on we're going to develop the next technology innovation, the next generation of technology, and assume that when that comes to market, the iteration, the continued iteration of technology coming out of Asia hasn't also, developed to to that to that point.
Alex:Yeah.
Markham:I'm I'm curious about your view of the global south because and I was reading just yesterday a Bloomberg, news story about how, given that the Americans have now essentially closed the the US and Canada followed suit, of course, so closed the North American market basically to, Chinese EVs, so big source of battery demand there. Europe has not taken quite the same approach. They have a sliding scale of of tariffs, and there's some discussions. It's not clear yet whether there might be a negotiated settlement or a negotiated agreement between the, Chinese and and the the EU over this issue. But the point of the article was, and this is something I I predicted last in the spring when Biden announced his 100% tariffs on EVs, is that the real game here is in the global south.
Markham:That's the that's the place where where there's an opportunity, to for China and and, I suppose, other Asian manufacturers to make inroads. And it's not likely that that the Americans or the Europeans are going to be competitive in those markets for a long time. And given that the huge capacity in China, in the battery industry, it would make sense that that the Chinese companies are looking for new markets. They need an outlet for that capacity.
Alex:Absolutely. And
Markham:so the global south then becomes the logical place, and it already looks like, you know, they've they've pivoted to that, in a big way over the last year or 2. So what role might the global south play in this newly competitive market, and especially with respect to China?
Alex:Yeah. I mean, you're absolutely right. When you look at a lot of these these Chinese companies throughout the supply chain, whether it's your cell manufacturers, whether graphite producers, cathode cathode manufacturers, producers of of whatever component it might be, they're all saying very similar things and that, actually, there there's a huge amount of competition within China starting to become a a somewhat saturated market. And so they are looking abroad, Europe, the US, and and other regions to try and continue, you know, their their own growth trajectories there. In terms of other markets, obviously, you've got your big three are China, North America, and Europe.
Alex:But there are obviously, you know, huge other kind of, untapped markets. And you've got places like India where the electrification of kind of, micro electric vehicles, 2 wheelers, 3 wheelers are gonna be important, same as in in maybe in other, regions in Southeast Asia. And there, you're looking generally kind of the the lower cost requirements, of some of those those markets, and applications in in some of those other regions. Obviously, that that makes it difficult to look past, ultimately, what what the Chinese, the big Chinese companies are producing, and they're obviously investing in some of these regions as well strategically if if you're looking at places like Indonesia and some of the resources they have there or some of the the resources maybe in Morocco and and enabling them to then export to to other regions. So, again, I think we're seeing a similar pattern in in that sort of the the Chinese companies are looking at this longer term, strategically, to try and access these these other markets.
Markham:The, the Chinese government's 3rd plenum wrapped up a couple of months ago, and it's very clear that the, the national government, we which has this, you know, great China strategy. It wants to you you know, it's building. It's expanding. It wants to it's a it's it tends to be a superpower to rival the US. And so out of that third plenum came a commitment to the next three things that that China is going to promote, and it's it's solar, EVs, and and batteries.
Markham:All of which seem to be to to have, implications for our our conversation around the global south. Because if you're China, you want us what we're always seeing is in Pakistan where cheap, Chinese solar panels, have been deployed at such a a level that it's beginning to affect demand for the grid. It went down 9% last year. And and so if China and using the belt and road initiative is exporting cheap solar, helping to build the infrastructure, helping to to export EVs and batteries, all of that seems to be a synergistic kind of effect on the battery industry. And, what would be your take on that?
Alex:Yeah. I mean, if you look at, I suppose, historically, China has been heavily reliant on on oil imports, and so you can look at it for from that perspective as to why they they might be keen on developing their own, EV industry, in particular, and, obviously, yeah, the solar industry. I think, developments there have been relatively well well documented, but you're absolutely right. And as I mentioned, earlier, deployment of, renewable energy sources, in particular, solar, and wind will create demand for flexibility on the grid, to help enable supply demand to match ultimately over various time frames. At the moment, most of that flexibility, or a lot of that new flexibility at least is coming from lithium ion battery storage systems.
Alex:So, yes, as the world moves towards more, you know, renewable systems, variable and renewable systems in particular, that does, yeah, create that demand for for for battery storage, as well.
Markham:So if we were to wrap all of these things up, these trends that we've been discussing, it would appear to me that the battery industry is looking, you know, between, say, now and 2030, it'd be a very dynamic time within the industry. You've got lots of innovation. You've got fall you know, falling prices. You've got policy support. You've got innovation.
Markham:You've I mean, this is a how would how what would be your take on the next, you know, 5 or 6 years, for the global battery industry, if you could just wrap it up?
Alex:Sure. I mean, broadly speaking over that medium term, as you say, kind of 5 to 6 years, we we remain positive ultimately on the outlook. You've got, key drivers in in demand from electric vehicles, as well as stationary battery systems. And that, again, is underpinned by megatrends with respect to, decarbonization, obviously, being a key theme. But, ultimately, you've got we will enter a point where electric vehicles and battery technology have improved to the point where you can get equivalent performance, and equivalent cost and price from an EV, as you would from a internal combustion engine based vehicle.
Alex:And similarly, the deployment of those those renewable energy sources, offering the potential for for lower power prices or on average at least, enabled by, storage systems, battery storage systems. And so on the whole, you know, we're we're broadly pretty positive on the outlook for, the battery industry. That doesn't mean that the there aren't going to be winners and losers, that there aren't going to be difficulties if you're trying to retain some of those industries that are placed within kind of local regions, Europe and the US. And, certainly, there will need to be continued innovation to improve battery technology, battery prices, and also minimize the, you know, the environmental impact. But, ultimately, these are all things being being worked on by the industry, and we see a lot of positive signs, going forward both for for demand and how how development to battery technology will help help meet that.
Markham:Well, very interesting. Alex, always a pleasure to talk to you. Thank you very much for this.
Alex:Great. Thank you very much.