"Thanks for the EV negativity": How the gloom could cut car prices

Car companies are not loving the negativity around consumer demand for battery-electric vehicles (BEVs) right now.

However, it does have one major advantage – pushing down the price of the materials needed to make them.

Which, as Stellantis CEO Carlos Tavares pointed out recently, helps his company nicely. “Many people are talking about the slowdown on the BEV demand, which has had a huge impact on the raw material cost,” he said. “That is helping us to reduce the total production cost on BEVs faster than the ICE [internal combustion engine].”

Lower-priced raw materials will help make EVs more affordable, solving one of the main pain points in the switch away from fossil fuels. “There will be a reverse situation at one point in time,” Tavares said.

Right now, car makers are cutting the overall purchase price of electric cars, but this discounting is coming at the expense of profit margins. Research by Autocar sibling brand What Car? shows that EV discounts have increased 204% since January 2023 as car makers rush to comply with the UK requirement to sell 22% zero-emission cars in 2024. As a result, sales of BEVs in the UK continued to rise in January.

Many will be sold at a loss, but a greater proportion won’t be thanks to the fall in the price of materials needed to build them, and specifically the lithium ion battery inside. For example, lithium carbonate prices have now fallen 80% since 2022.

This has resulted in a 14% year-on-year drop in the price of automotive batteries, according to an annual survey conducted by energy analyst Bloomberg NEF late last year. It found that battery pack prices had fallen to a record low of $139/kWh (£110), with lithium-iron-phosphate (LFP) battery packs even lower, at $130/kWh. 

The lower prices were “driven by raw material and component prices falling as production capacity increased across all parts of the battery value chain,” the BNEF report stated. Meanwhile, “demand growth fell short of some industry expectations.”

Like other commodities, prices of battery metals are driven by forward predictions as much as current demand. Commodities futures are essentially a bet on what the material will be worth at a later date, so gloominess creates discounts. For example, Russia’s invasion of Ukraine in 2022 triggered a spike in prices as traders feared disruption to supply, with nickel at one point surpassing $100,000 per metric tonne. It's currently at $17,601.

Just as the share price of EV-focused auto makers spiked and then fell on a more negative outlook, so the same is happening to metals prices. 

That is cheering up car companies tremendously as they double their efforts to strip out costs from expensive electric vehicles. “The raw material costs within the battery supply chain have changed dramatically in the last year,” Rivian CEO RJ Scaringe told investors in February. “So that has a very significant impact on our overall cost structure.”

Renault saw the price of raw materials take a €350 million (£300m) bite out of profits in the first half of last year, but by the second half, that had partly reversed to the point that the final year hit fell to €216m (£185m). “The pressure is now easing very significantly,” said Renault chief financial officer Thierry Pieton.

Renault is one of a handful of manufacturers who have reduced the list price of electric cars, rather than just discount them. For example, in November it took £2500 off the price of the Mégane E-Tech so it started at £34,495 and more recently added an entry-level version of the new Scenic, effectively slashing the family SUV's price by £3500 to £37,495. “The important message is we do cost reduction first, and then we do the pricing reduction after that to try to protect the margin of the car,” Pieton said.

Renault, meanwhile, has promised to take 40% out of the cost of its future generation of EVs, starting with the Twingo city car.

Other previously painful car-making bills are falling too. JLR, for example, booked a £271m boost from falling costs in the three months ending 31 December, mainly due to the fact that it didn't have to pay exorbitant sums to brokers just to secure enough semiconductors. 

Renault also noted a recent fall in two other cost spikes that all car makers have had to suffer in the past couple of years – logistics and energy – while also pointing out they were still high.

BNEF predicts battery pack prices will continue on their path downward, hitting $113/kWh in 2025 and $80/kWh in 2030. That remains substantial. It means a 50kWh pack will still be a $4000 entry into the final cost bill for a small car, but less than almost $7000 now.

As the Chinese start to come close to price parity with combustion-engine vehicles, Mercedes-Benz is warning that it will take longer for others. “It's no secret that the variable cost of the battery-electric vehicle sits significantly above what we were used to on the combustion side,” said CEO Ola Källenius  last month. “And it will remain so for the foreseeable future.”

However, the fall in materials cost has given car makers hope that, barring another black swan event like the Russian invasion, the task of making EVs both affordable and profitable has got a bit easier. Renault’s Pieton delivered the good news to investors last month, saying: “The big change… is that the cost of goods sold is finally going to become a tailwind overall, which it hasn't been for three or four years now.”