Buyers from all over the world are lining up to buy electric vehicles this year, despite rising sticker prices, reversing a decade and a half of conventional wisdom that EV sales would only take off if battery costs fell below a barrier that was always just over the horizon.

EV demand has remained robust this year, despite the fact that the average cost of lithium-ion battery cells increased to $160 per kilowatt-hour in the first quarter, up from $105 last year. Costs increased as a result of supply chain interruptions, Russian metal restrictions, and investor speculation.

Higher battery costs increased over $1,500 to the sticker price of a smaller vehicle like the Hongguang Mini, China’s best-selling electric vehicle.

However, since Russia’s invasion of Ukraine, gasoline and diesel fuel prices have surged, and analysts say that environmental concerns are pushing more purchasers to pick EVs despite the unpredictable economy.

Manufacturers ranging from Tesla to SAIC-GM-Wuling, which produces the Hongguang Mini, have passed on greater costs to consumers by raising EV prices by double digits.

More could be on the way. According to Andy Palmer, chairman of InoBat, a Slovak EV battery manufacturer, the battery industry’s margins are already razor-thin, so “increasing costs will have to be passed on to carmakers.”

If raw material prices continue to rise, automakers like Mercedes-Benz (MBGn.DE) will most certainly pass the cost on to customers. According to Reuters, Chief Technology Officer Markus Schaefer stated, “We need to retain margins.”

EV buyers, on the other hand, have not been deterred. According to EV-volumes.com, global EV sales increased by approximately 120 per cent in the first quarter. In March, Nio, Xpeng, and Li Auto in China set new EV sales records. In the first quarter, Tesla delivered a total of 310,000 electric vehicles, a new high.

“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 increase in battery prices could be a hiccup in a long-term trend that has seen costs fall for three decades due to technological advancements and increased production. According to industry data, the average cost of $105 per kilowatt hour in 2021 fell dropped about 99 percent from over $7,500 in 1991.

Experts predict that battery prices will remain high for the next year or so, but that a significant drop will follow as automakers and suppliers make large-scale investments in mining, refining, and battery cell production, as well as a move to diversify raw material sources, tip the balance from shortage to surplus.

“It’s like a bubble — and for that bubble to settle down, it’s going to be at least the end of 2023,” said consultant Prabhakar Patil, a former LG Chem (051910.KS) executive.

Britishvolt, a British battery firm, plans to start producing batteries in 2024 at a 45-gigawatt-hour plant in northeast England. “Don’t fix your prices now,” Isobel Sheldon, chief strategy officer, said the company is hearing from raw materials suppliers. “Wait for the next 12 months and fix your prices then because everything will be on a more equal keel.”

“This over-securing of resources should be behind us by then,” she said.

The battery cell cost threshold of $100 per kilowatt-hour was long anticipated by the industry as a sign that electric vehicles had reached price parity with fossil-fuel counterparts. However, economists argue that with rising gasoline prices and shifting consumer choices, this may no longer be an issue.

According to Stan Whittingham, a co-inventor of lithium-ion batteries and a 2019 Nobel laureate, EV demand in China and other markets “is going up quicker than people imagined — faster than the supply of materials” for EV batteries.

Concerns about the environment and climate change have also prompted purchasers, particularly the younger generation, to opt for electric vehicles over those that use fossil fuels, according to Chris Burns, CEO of Novonix, a Halifax-based battery materials supplier.

“Many younger people entering the market are making buying decisions beyond simple economics and are saying they will only drive an EV because they are better for the planet,” Burns says. “They are making the plunge even though it would be cheaper” to drive a gas-powered car.

“I don’t think we will stop seeing reports trying to show a trend in battery prices down towards $60 or $80 a kilowatt-hour as aspirational targets, but it is possible that those may never get met,” he said. “However, it doesn’t mean that EV adoption will not rise.”

(Adapted from USNews.com)

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