What’s next for the EV and battery value chains?

On 27th March 2024, Wood Mackenzie held the third annual Future Facing Commodities Forum and welcomed over 1,400 guests across our Asia Pacific and US/EMEA broadcasts.  

One of our expert panels was around the future of EV (electric vehicle) and battery value chains; exploring topics such as the recent surge in hybrids, the impacts of mass-market electrification, the trajectory of road transport electrification, and more.  

Fill out the form at the top of the page to watch a recording of the full panel and to download a copy of the presentation slides. Or, read on for a summary of some of the key points from the panel:

The recent surge in hybrids will not impact the US’ long-term electrification trajectory  

The US electric vehicle (EV) market has been saturating with more and more entrants targeting a customer base that just isn’t growing that fast – early adopters who ignored the significantly higher price points despite the prevalence of less expensive internal combustion engine vehicle (ICEV) alternatives. 

With growth slowing and the pressure to comply with stringent fuel economy and emission norms becoming stronger, hybrids have emerged as a temporary compliance solution. 

However, overcoming buyer stigma around hybrids will be a massive marketing challenge for the Detroit Three whose target consumers prioritise performance instead of economy.

Meanwhile, the considerable resources that the OEMs have directed to lithium-ion battery plants and dedicated EV platforms suggest that battery-electric vehicles (BEV) will continue to be the end game, once they have been properly cost-optimised. 

Mass-market electrification will require cost reductions to EV systems beyond just the battery 

Because of the massive price differential between EVs and conventional vehicles in the current US auto market, the US$7,500 federal tax subsidy is making all the difference determining whether a specific electric model has a value proposition or not.

Unfortunately, at least a portion of the credit would be necessary to maintain this value even if high-nickel pack costs drop to the limits of raw material prices. 

This has made it necessary for the auto sector to cut platform costs on the non-battery side. Tesla’s plan to halve its platform costs and become the first to produce a profitable US$25,0000 EV for the US is heavily dependent on its plan to lean even further into vertical integration and adopt completely new manufacturing and vehicle engineering principles. 

Raw material prices have come under pressure, but long-term requirements remain  

Battery raw material prices have fallen significantly since late last year. Prices for lithium, which is arguably the industry trend setter, fell much more much quickly than expected. The spodumene concentrate price halved in the last two months of the year, and prices for lithium hydroxide fell by 30%.

Historically, strong demand growth from EVs as well as high prices has encouraged investment in new mine projects - and this supply is now being realised. We ended 2023 switching from an industry in deficit to one in surplus and significant project ramp-ups scheduled over the next few years.

The weaker macro-economic backdrop and associated impact on EV demand created the perfect storm – and we could be facing a scenario of surpluses and lower prices over the next few years. This isn’t just a lithium story either; other raw materials have followed suit, with nickel sulphate and cobalt prices affected too. 

However, while EV growth trajectories may have slowed this year, this is still against a background of unprecedented growth for battery raw materials demand. In the long-term, there is still a requirement for new supply to be incentivised to meet this demand, creating a significant supply gap on ten-year timeframe.

Yet the current low-price environment is discouraging investment, which will only encourage prices to recover sooner. On the demand side, low raw material prices could also drive higher EV uptake, if the economic environment allows, bringing forward increases in demand. 

E-fuels alone will be unable to change the trajectory of road transport electrification 

While highly capable of reducing vehicle lifecycle emissions, truly carbon-neutral fuels for mass-market adoption will require extremely large cost degressions in a very short amount of time – time the technology simply does not have. 

By the time carbon-neutral fuel costs drop to the levels required, lithium-ion battery costs would have dropped massively, utilisation rates of most ICE manufacturing plants would be dwindling. In addition to this, the ICE tier-2 and tier-3 supplier ecosystem would have shrunk to a fraction of its size, discouraging investments in new engine development and production. 

Automakers will hedge against raw material price volatilities through battery technology diversification 

Not only are automakers developing new ways to build EVs, but the cost to produce an EV battery has also plummeted with increasing manufacturing efficiencies and economies of scales. Adoption of new battery technologies, including sodium-ion, next-generation lithium iron phosphate and manganese-rich cathodes, will reduce battery raw material costs, which can account for up to 60% of the cost of an EV pack.

Several automakers in China have already built sodium-ion-powered EVs whose costs are shielded from lithium price volatility. In the West, automakers have pivoted to iron-based chemistries with a proven track record in Chinese EVs. The next-generation of iron-based EV packs are close on the horizon, with the potential to match the performance of nickel-based EV packs with innovative designs.  

Learn more 

To find out more about the future of EV and battery value chains, please fill out the form at the top of the page and enjoy your free recording of the presentation and complimentary slide deck – complete with extra insights and detailed graphs.