Bloomberg analysts claim that in 2025 electric cars will cost the same as ICE vehicles.
During first three months into 2018 Tesla produced nearly 34,5 thousand electric cars. This is 40% more than produced in the fourth quarter of 2017. To a great extent, doubling the production rate of consumer-grade Model 3, whose cost begins at 35 thousand dollars, preconditioned such production growth.
In future Tesla is planning to focus primarily on Model 3. By the end of the second quarter the company intends to ramp up production almost two and a half times, i.e. to produce up to 5 thousand electric cars a week. Such high-flying plans made many investors believe that the prices for lithium used for production of batteries is the key factor of high cost of EVs and due to this fact the prices will go on moving upward.
In 2017 the prices grew by approximately by 50 % and almost three times as much in past three years. This depended largely on the increased interest of the world car industry in production of EVs. This sector consumes about 40 % of the total volume of lithium mined globally.
But is it true that the demand growth for this metal will lead to further increase of its cost? It is understood that in this case electric vehicles will remain very expensive and in this regard it will be rather pointless to speak seriously about the increase in sales.
Tesla understands this perfectly well. Company management has already announced that one of the company’s priority goals is batteries’ cost improvement. To translate this statement into reality the company signed a lithium purchase agreement with “Bacanora Minerals”, which is in possession of a deposit in the Mexican Sonora desert, and with “Pure Energy Minerals”, which develops the deposits in the state of Nevada. Both extracting companies are not among the big producers and due to this they are ready to trade the price for the sake of sales volume growth. After sealing the bargain, both companies were quick to say to the media that they would deliver lithium cheaper than the current market price.
As such this agreement, experts say, is unlikely to allow significant decrease in world market prices for the batteries. But what it can allow for this is another and more world-spanning factor - abundance of lithium deposits. Today the estimated world reserves of lithium are equal to nearly 28 million tons with officially proven reserves amounting to 14 million tons while the demand for lithium is about 40-45 thousand tons per year (42,9- thousand tons in 2017), hence; creating a surplus of lithium across the globe and cheapening the cost of it is not at all an unlikely scenario.
The majority of reserves are embedded in so-called “ Lithium Triangle” located in South America (more than 19 million tons). However, those deposits are concentrated in the bitter lakes and their extraction is related to environmental deterioration in the region as well as with extra expenditures for comprehensive processing of brines.
Mining in Chile and Argentina is carried out by three out of four major core businesses that supply the market with half of the total amount of lithium produced globally. These companies are Chilean “SQM”, as well as American “FMC Corp.” and “Albemarle Corp.”. Jointly with Australian “Talison”, whose major shares belong to the Chinese, they account for about 85 % of the global market.
The volumes of lithium prospected in China (5,4 million tons) and in the USA (4 million tons) followed by Australia are a little under the South American reserves. However, primary expectations of automotive industry manufacturing EVs are invested in Australia. The estimated reserves concentrated in this country include 1, 5 million tons of lithium. Comparably low cost of development allows the companies to say that in near future they will be able to create surplus of lithium in the market and contribute to reduction of cost of batteries for EVs.
Taking into account the output growth, the shares of Australian mining company “Galaxy Resources” have already gone up six fold. But the prices for lithium have indeed started slipping down, though no near the impressive growth rates shown before now.
Bloomberg analysts consider this a good sign and assure that by 2025 cars with electric propulsion system will cost only marginally more than ICE automobiles. The key parameter in such price reduction will be specifically the cost of lithium-ion batteries. If today the cost is a little over 200 dollars for 1 kWh, by 2030 it will be a third of the current price.
«Volumes of electric vehicles sales will increase in the coming years, but it is necessary to reduce prices of the batteries for a real change of the automobile market. If expenditures for their production increase then the expected changes won’t come true»- said Colin McKerracher, the lead advanced-transportation analyst, Bloomberg New Energy Finance.
One more factor, which might affect the lithium market, is the research aimed at the development of efficient and ecologically safe technology of battery recycling on a global scale. For example, experts from «Chemetall» company say that a balanced mechanism of battery recycling may make it possible to return about a half of lithium content in run-down batteries to the production process. In case this project comes true prices for electric cars will drop significantly.
On the other hand not everybody shares this view on the future of cutting the EV production cost. Doubters say that nowadays the major part of designing a new EV model is aimed at nothing, but creating a favorable image of the automaker. “Green focus” is a good marketing pitch that, nevertheless, is sometimes far from making a profit. This explains why many of prior advertised models are already out of production. Whereas the impressive figures illustrating growth of sales are secured due to hybrids that are run on both petrol and electricity, which can hardly be called “electric vehicles”.
The would-be buyers are put off by the nonconformity of these cars to harsh climatic conditions and underdevelopment of the infrastructure for batteries recharging. After all, the driving range on a single charge is rather short compared to gas-powered vehicles. Consequently, even in case the cost of EVs will drop customers might still prefer classic ICE automobiles to plug-in electric vehicles.
