Lithium-Ion Capacity Glut Keeps Battery Prices Low

While fossil energy consumers and producers either love or hate a persistent oversupply that is keeping world oil prices low, Bloomberg New Energy Finance has identified a surprising glut drive down prices in a different sector of the energy industry: lithium-ion storage.

“Lithium-ion battery manufacturers built large amounts of capacity in 2011, expecting significant demand from EVs,” writes Bloomberg New Energy Finance analyst Claire Curry. “But passenger EV sales were lower than expected in 2011 [to the first half of] 2015, meaning demand for lithium-ion batteries was low and the manufacturing industry suffered from oversupply.”

“To increase utilization,” Curry adds, “manufacturers have been lowering prices and competing fiercely with one another, as well as targeting the electric bus market.” Taking into account technical advances, as well, the price for a kilowatt-hour of storage has fallen by nearly 75% since 2010, reaching US$273/kWh last year.

The analyst predicts an uptick in electric vehicle sales this year and a steady rise in numbers and market share over the years ahead. But she also notes that manufacturers, anticipating that demand growth, have already announced further capacity expansions that are likely to sustain the state of oversupply.

This poses a dilemma for manufacturers, Curry observes. “They need to attract investment for [planned expansions], although revenues from sales are still quite low, and then disclose how they plan to make profits from the new investment.” She recommends investing in technology to reduce production costs, and notes that some manufacturers “are also entering the stationary storage market aggressively to increase market share.”

Automakers eager “to reduce battery prices to improve their vehicle economics,” the BNEF analyst adds, “can do this by signing large, long-term contracts with suppliers; by entering other battery markets; and [by] repurposing used EV batteries for a second life.”