The cost of power batteries has dropped by 90% in 15 years, and the production cost of electric vehicles is expected to be lower than that of fuel vehicles in three years.

The Department of Energy's Vehicle Technologies Office found that, taking inflation into account, the cost of lithium-ion battery packs for electric vehicles fell by about 90% in the 15 years from 2008 to 2023. In 2008, the cost of mass-produced power batteries was about $1,415/kWh, and in 2013, the cost had dropped to $139/kWh. Bloomberg NEF also confirmed this trend, and its annual battery price survey showed that the cost of lithium-ion battery packs fell by 14% in 2023, reaching a record low of $139/kWh.

The cost reduction is primarily due to the decline in the prices of battery raw materials and components. The lithium ore market peaked at the end of 2022 and has since stabilized. The current price is in a downward range. At the same time, the advancement of power battery technology has enabled the development and production of batteries with higher energy density, allowing electric vehicles to store more electricity in a compact space, which has driven down costs.

Innovations in manufacturing processes, such as centralized vehicle architecture and one-piece die-casting, have simplified the production process and reduced manufacturing costs and assembly time. Of course, scale production has also played a vital role. As battery production continues to grow, unit costs have also declined.

In addition, with the weak demand for electric vehicles in the European and American markets, electric vehicle manufacturers and power battery manufacturers have re-evaluated their production targets, further affecting battery cost prices. The fiercely competitive electric vehicle market has prompted automakers to look for lower-cost power batteries, and new batteries such as lithium iron phosphate (LFP) have attracted the attention of the entire industry.

S&P Global Mobility recently pointed out that LFP battery technology is becoming a key step in cost control in the electric vehicle industry, and almost all mainstream automakers in the world are involved, hoping to introduce LFP into their automotive products.

Among the top ten power battery global installed capacity list, Chinese and Korean power battery manufacturers occupy the vast majority. Although Chinese power battery manufacturers such as CATL and BYD have established a dominant position in the LFP battery manufacturing ecosystem. However, traditional automakers in the United States and Europe hope to establish a localized LFP battery supply chain in order to reduce costs (30%-40%).

This strategy of diversifying suppliers will create more opportunities for power battery manufacturers and increase the market share of LFP batteries. After the expiration of the core patent of LFP batteries in 2022, Korean battery companies such as LG Energy Solution (LGES), SK On and Samsung SDI have accelerated the development of LFP batteries.

In July, European automaker Renault announced the battery strategy for its electric car Ampere. The company signed an agreement with LG Energy Solution and CATL to establish an LFP battery industry chain in Europe. Renault said the first batch of Ampere models equipped with LFP battery technology are scheduled to be launched in early 2026. The use of LFP batteries and cell-to-pack technology will reduce the battery cost of this electric car by about 20%.

Public data shows that CATL will supply LFP batteries to Ampere from its Hungarian factory, while LG Energy Solution will supply NCM (nickel-cobalt-manganese ternary lithium battery ) and LFP batteries from its Polish factory. The five-year contract signed by LG Energy Solution and Renault shows that between the end of 2025 and 2030, it will supply LFP batteries with a total capacity of approximately 39GWh to Ampere to power approximately 590,000 pure electric vehicles. This is the first time that LG Energy Solution has officially announced the large-scale application of LFP batteries, and it is also the first large-scale supply contract it has signed.

Before 2030, LFP batteries produced by LG Energy Solutions and CATL will also be used in multiple electric vehicle models of Renault and Alpine brands. Previously, Renault's battery strategy was more inclined towards NCM ternary lithium battery technology.

In the North American market, Ford and CATL have reached a global strategic cooperation agreement on power battery supply. In 2023, CATL will provide LFP battery packs for Mustang Mach-E and for F-150 Lightning in 2024. In addition, Blue Oval SK, a joint venture between Ford and South Korean power battery manufacturer SK On, will produce LFP batteries in Michigan in 2026. This will be the first LFP battery factory in the United States supported by an automaker and will produce the cheapest power batteries in North America.

SK On previously revealed that it has completed the development process of LFP batteries internally and plans to achieve mass production as early as 2026. It also claimed that the energy density of the Winter Pro lithium iron phosphate battery it developed is 19% higher than that of ordinary LFP batteries.

S&P Global Mobility's battery price model estimates that the price of Chinese LFP batteries will drop to $52/kWh in 2024, about 25% lower than the price of NCM811 ternary lithium batteries, further reducing the production cost of electric vehicles. In contrast, North America and Europe are facing difficulties in selling electric vehicles due to the lack of such cost-effective batteries.

BNEF predicts that by 2025, the production cost of power batteries will further drop to $113/kWh, and by 2030 it will drop to $80/kWh. The substantial reduction in the cost of power batteries will have a profound impact on the overall production cost of electric vehicles. Research firm Gartner predicts that by 2027, the production cost of electric vehicles is expected to be lower than that of fuel vehicles.