Automotive lithium-ion (Li-ion) battery demand increased by about 65% to 550 GWh in 2022, from about 330 GWh in 2021, primarily as a result of growth in electric passenger car sales, with new registrations increasing by 55% in 2022 relative to 2021.

In China, battery demand for vehicles grew over 70%, while electric car sales increased by 80% in 2022 relative to 2021, with growth in battery demand slightly tempered by an increasing share of PHEVs. Battery demand for vehicles in the United States grew by around 80%, despite electric car sales only increasing by around 55% in 2022. While the average battery size for battery electric cars in the United States only grew by about 7% in 2022, the average battery electric car battery size remains about 40% higher than the global average, due in part to the higher share of SUVs in US electric car sales relative to other major markets,1 as well as manufacturers’ strategies to offer longer all-electric driving ranges. Global sales of BEV and PHEV cars are outpacing sales of hybrid electric vehicles (HEVs), and as BEV and PHEV battery sizes are larger, battery demand further increases as a result.

The increase in battery demand drives the demand for critical materials. In 2022, lithium demand exceeded supply (as in 2021) despite the 180% increase in production since 2017. In 2022, about 60% of lithium, 30% of cobalt and 10% of nickel demand was for EV batteries. Just five years earlier, in 2017, these shares were around 15%, 10% and 2%, respectively. As has already been seen for lithium, mining and processing of these critical minerals will need to increase rapidly to support the energy transition, not only for EVs but more broadly to keep up with the pace of demand for clean energy technologies.2 Reducing the need for critical materials will also be important for supply chain sustainability, resilience and security. Accelerating innovation can help, such as through advanced battery technologies requiring smaller quantities of critical minerals, as well as measures to support uptake of vehicle models with optimised battery size and the development of battery recycling.

In 2022, lithium nickel manganese cobalt oxide (NMC) remained the dominant battery chemistry with a market share of 60%, followed by lithium iron phosphate (LFP) with a share of just under 30%, and nickel cobalt aluminium oxide (NCA) with a share of about 8%.

Lithium iron phosphate (LFP) cathode chemistries have reached their highest share in the past decade. This trend is driven mainly by the preferences of Chinese OEMs. Around 95% of the LFP batteries for electric LDVs went into vehicles produced in China, and BYD alone represents 50% of demand. Tesla accounted for 15%, and the share of LFP batteries used by Tesla increased from 20% in 2021 to 30% in 2022. Around 85% of the cars with LFP batteries manufactured by Tesla were manufactured in China, with the remainder being manufactured in the United States with cells imported from China. In total, only around 3% of electric cars with LFP batteries were manufactured in the United States in 2022.

LFP batteries contrast with other chemistries in their use of iron and phosphorus rather than the nickel, manganese and cobalt found in NCA and NMC batteries. The downside of LFP is that the energy density tends to be lower than that of NMC. LFP batteries also contain phosphorus, which is used in food production. If all batteries today were LFP, they would account for nearly 1% of current agricultural phosphorus use by mass, suggesting that conflicting demands for phosphorus may arise in the future as battery demand increases.

With regards to anodes, a number of chemistry changes have the potential to improve energy density (watt-hour per kilogram, or Wh/kg). For example, silicon can be used to replace all or some of the graphite in the anode in order to make it lighter and thus increase the energy density. Silicon-doped graphite already entered the market a few years ago, and now around 30% of anodes contain silicon. Another option is innovative lithium metal anodes, which could yield even greater energy density when they become commercially available.

In recent years, alternatives to Li-ion batteries have been emerging, notably sodium-ion (Na-ion). This battery chemistry has the dual advantage of relying on lower cost materials than Li-ion, leading to cheaper batteries, and of completely avoiding the need for critical minerals. It is currently the only viable chemistry that does not contain lithium. The Na-ion battery developed by China’s CATL is estimated to cost 30% less than an LFP battery. Conversely, Na-ion batteries do not have the same energy density as their Li-ion counterpart (respectively 75 to 160 Wh/kg compared to 120 to 260 Wh/kg). This could make Na-ion relevant for urban vehicles with lower range, or for stationary storage, but could be more challenging to deploy in locations where consumers prioritise maximum range autonomy, or where charging is less accessible. There are nearly 30 Na-ion battery manufacturing plants currently operating, planned or under construction, for a combined capacity of over 100 GWh, almost all in China. For comparison, the current manufacturing capacity of Li-ion batteries is around 1 500 GWh.

Multiple carmakers have already announced Na-ion electric cars, such as the Seagull by BYD, which has an announced range of 300 km and is sold for USD 11 600 (with possible discounts bringing the price down to USD 9 500), and the Sehol EX10, produced by the VW-JAC joint venture, with a 250 km range. While these first models are likely to be slightly more expensive than the cheapest small BEV models in China – such as the Wuling Mini BEV, sold for as little as USD 5 000 to 6 500 – they are still cheaper than equivalent options with similar driving range. To compare, the Wuling Mini BEV’s range stands at 170 km, but BYD’s Dolphin BEV, the second best-selling small BEV in China in 2022, with a similar range to the announced Na-ion cars, can cost more than USD 15 000. BYD plans to progressively integrate Na-ion batteries into all its models below USD 29 000 as battery production ramps up. These announcements suggest that electric vehicles powered by Na-ion will be available for sale and driven for the first time in 2023-2024, hence bringing the technology to a readiness level (TRL3) of 8-9, between first-of-a-kind commercial and commercial operation in the relevant environment. In 2022, it was assessed at TRL 6 (full prototype at scale) in the IEA Clean Technology Guide, compared to only TRL 3-4 (small prototypes) in the assessment from 2021, highlighting quick technological progress.

The variability in price and availability of critical minerals can also explain some of the developments in battery chemistry from the last few years. NMC chemistries using an equal ratio of nickel, manganese, and cobalt (NMC333 or NMC111) were popular until 2015. Since then, cobalt price increases and concerns affecting public acceptance of cobalt mining have contributed to a shift towards lower-cobalt ratios, such as NMC622, and then NMC811, which are nevertheless more difficult to manufacture. In 2022, the price of nickel increased, reaching a peak twice as high as the 2015-2020 average. This created incentives to use chemistries that are less reliant on nickel, such as LFP, despite their lower energy density.

Lithium carbonate prices have also been steadily increasing over the past two years. In 2021, prices multiplied four- to five-fold, and continued to rise throughout 2022, nearly doubling between 1 January 2022 and 1 January 2023. At the beginning of 2023, lithium prices stood six times above their average over the 2015-2020 period. In contrast to nickel and lithium, manganese prices have been relatively stable. One reason for the increase in prices for lithium, nickel and cobalt was the insufficient supply compared to demand in 2021. Although nickel and cobalt supply surpassed demand in 2022, this was not the case for lithium, causing its price to rise more strongly over the year. Between January and March 2023, lithium prices dropped 20%, returning to their late 2022 level. The combination of an expected 40% increase in supply and slower growth in demand, especially for EVs in China, has contributed to this trend. This drop – if sustained – could translate into lower battery prices.

Beyond those materials, global commodity prices have surged in the last few years, as a result of supply disruptions in the wake of the Covid-19 pandemic, rising demand as the global economy started to recover, and Russia’s invasion of Ukraine in February 2022, among other factors.

In 2022, the estimated average battery price stood at about USD 150 per kWh, with the cost of pack manufacturing accounting for about 20% of total battery cost, compared to more than 30% a decade earlier. Pack production costs have continued to decrease over time, down 5% in 2022 compared to the previous year. In contrast, cell production costs increased in 2022 relative to 2021, returning to 2019 levels. This can be explained in part by the increasing prices of materials, which account for a significant portion of cell price, and of electricity, which affects manufacturing costs, whereas efficiency gains in pack manufacturing help decrease costs. Bloomberg New Energy Finance (BNEF) sees pack manufacturing costs dropping further, by about 20% by 2025, whereas cell production costs decrease by only 10% relative to their historic low in 2021. This warrants further analysis based on future trends in material prices.

The effect of increased battery material prices differed across various battery chemistries in 2022, with the strongest increase being observed for LFP batteries (over 25%), while NMC batteries experienced an increase of less than 15%. Since LFP batteries contain neither nickel nor cobalt, which are relatively expensive compared to iron and phosphorus, the price of lithium plays a relatively larger role in determining the final cost. Given that the price of lithium increased at a higher rate than the price of nickel and cobalt, the price of LFP batteries increased more than the price of NMC batteries. Nonetheless, LFP batteries remain less expensive than NCA and NMC per unit of energy capacity.

The price of batteries also varies across different regions, with China having the lowest prices on average, and the rest of the Asia Pacific region having the highest. This price discrepancy is influenced by the fact that around 65% of battery cells and almost 80% of cathodes are manufactured in China.