Will lower EV and battery material prices provide a much-needed opportunity for EV automakers to boost demand by passing on lower prices to consumers? 

Critical materials prices have been on a six-month slide following recent highs in February this year. Key battery materials, lithium and graphite, have seen prices fall by more than 40% over that period as the supply chain adjusts to a softening demand outlook in China. Although Project Blue expects key prices to plateau over the next three months, the key question is: will lower EV and battery material prices provide a much-needed opportunity for EV automakers to boost demand by passing on lower prices to consumers? 

Falling critical materials prices 

Project Blue’s Critical Materials Basket Price Index, tracking 30 different materials prices, fell by 15% over the past 6 months. As inflationary cost pressures have begun to ease, the uncertainty around global demand markets has bitten, with a weakening 2023 outlook for China demand in particular impacting on prices right across EV & Battery, Steel Alloys and Technology Metals. Project Blue anticipates that much of the recent sentiment towards falling prices will find a floor over the coming 3-6 months. After 6-months of downward pressure, falling inventory levels across the supply chain will result in a recovery in materials demand, weighted more to the end of the year, as we move closer to the cyclical restocking ahead of the Chinese New Year.  

EV and battery materials 

Project Blue’s EV and Battery Basket Price Index fell by 28% over the past 6 months – largely due to significant downward price pressure for lithium, graphite and light rare earths. Lithium prices are forecast to continue on a downward trajectory in September and October, as consumers continue to run down inventories and purchase hand-to-mouth in anticipation of further price decreases. Restocking from mid-Q4 2023 is forecast to see greater price support for domestic China trades, with prices recovering albeit at a slow rate at first as market sentiment reaches consensus. Lithium carbonate is set to maintain its premium over lithium hydroxide spot prices, held since July 2023, as demand for lithium carbonate from LFP cathode manufacturers remains more robust. Increased competition from synthetic graphite production in China has led to a downward price trajectory for spherical and flake graphite, despite strong underlying demand growth. Improving market sentiment for magnet demand in China has supported purchases of neodymium and other major magnet products in August, but with high volumes of supply out of Myanmar driving a short-term surplus. Rare earth producers are holding back material ahead of anticipated price increases in Q4 2023. 

As a consequence of lower material costs, EV battery costs have fallen over the last 6 months giving EV manufacturers a boost to help match-up price discounts that have become more common in the first part of 2023 – particularly in China. Passing through these lower costs, some of which will follow with a lag due to longer-term contract prices, should provide overall cost savings to the EV market which in turn can help stimulate demand in the auto market looking for low-cost EV alternatives, particularly as subsidies and tax-breaks continue to roll-off in China and across Europe. 

Where next for EV demand? 

As China’s EV subsidies fell away at the end of 2022, Q1 2023 data pointed towards a significant slowdown in EV sales growth in China. While some of this slow-down was anticipated, the resulting price cuts by auto manufacturers were deeper and more widespread than forecast. China’s Q2 EV sales point towards discounts and local subsidies beginning to restimulate the high levels of EV sales growth associated with a market that accounted for nearly 63% of 2022 global EV sales by volume. 

EV sales for H1 2023 were up 42% year-on-year, with China growth at 45%. Subsidies and incentives falling out of the 2022 IRA act pushed EV sales in the USA 53% higher, while European growth rebounded from just 14% in 2022 to 25% for H1 2023. At the start of the year, Project Blue’s 2023 EV sales projections for total battery and plug-in hybrid EV sales were set to surpass 14 million. After seven months of EV sales data, the market appears to be falling slightly behind those projections. However, lower battery material costs – which can account for more than 20% of the total cost of a battery EV – may provide EV manufacturers with a price point to boost demand in the last part of the year. Assuming cost savings are passed through to consumers, the fall in battery material prices might provide the stimulus needed to get EV sales demand back on track through to the end of the year.