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By Paul Lienert and Nick Carey
(Reuters) - Buyers around the world are lining up to purchase electric vehicles this year even with sticker prices surging, flipping the script on a decade and a half of conventional auto industry wisdom that EV sales would break out only after battery costs dropped below a threshold that was always just over the horizon.
This year, EV demand has stayed strong even as the average cost of lithium-ion battery cells soared to an estimated $160 per kilowatt-hour in the first quarter from $105 last year. Costs rose due to supply chain disruptions, sanctions on Russian metals and investor speculation.
For a smaller vehicle like the Hongguang Mini, the best-selling EV in China, the higher battery costs added almost $1,500, equal to 30% of the sticker price.
But gasoline and diesel fuel costs for internal combustion vehicles have also skyrocketed since Russia invaded Ukraine, and experts noted that environmental concerns also are pushing more buyers to choose EVs despite the volatile economics.
Manufacturers from Tesla to SAIC-GM-Wuling, which makes the Hongguang Mini, have passed higher costs on to consumers with double-digit price increases for EVs.
More may be coming. Andy Palmer, chairman of Slovak EV battery maker InoBat, says margins in the battery industry are already wafer thin, so "rising costs will have to be passed onto carmakers."
Vehicle manufacturers like Mercedes-Benz will likely shift increases to customers if their raw material prices keep rising. "We need to keep margins," Chief Technology Officer Markus Schaefer told Reuters.
But EV shoppers have so far not been deterred. Global EV sales in the first quarter jumped nearly 120%, according to estimates by EV-volumes.com. China’s Nio, Xpeng and Li Auto delivered record EV sales in March. Tesla delivered a record 310,000 EVs in the first quarter.
Here's a graphic: https://tmsnrt.rs/3OjptBX
‘DIFFERENT KIND OF TIPPING POINT’
“There is a different kind of tipping point that we seem to have hit — an emotional or psychological tipping point among consumers,” said Venkat Srinivasan, director of the Center for Collaborative Energy Storage Science at the U.S. government’s Argonne National Laboratory in Chicago. He said "more and more people" would buy EVs "notwithstanding the cost of the battery and the vehicle."
This spike in battery costs could be a blip in the long-term trend in which technology improvements and growing production pushed costs down for three straight decades. Industry data showed that the $105 per kilowatt hour average cost in 2021 was down nearly 99% from over $7,500 in 1991.