For the first time in more than a decade, the cost of an electric car battery is set to rise this year, reports The Financial Times (Oct. 10, 2022). Soaring prices for battery raw materials — such as lithium, cobalt and nickel — have led to the reversal of a long-held trend towards cheaper cells, which had seen costs come down from $1,220 per kilowatt-hour in 2010 to $132 per KWH last year. And a return to more expensive batteries, alongside a supply chain squeeze, calls into question how quickly electric vehicles can become affordable mass-market products — at a time when transport still accounts for a quarter of the carbon dioxide emissions that are a driver of global warming.
This means that carmakers will experience prolonged production disruptions, akin to those caused by semiconductor shortages over the past two years. So, faced with constraints on their ability to acquire raw materials, some companies are planning to take over the buying of vital inputs themselves, rather than leaving it to a vast base of suppliers.
Tesla was the first carmaker to venture onto this path in 2020, saying the company would intervene directly, where necessary, to supplement the supply of battery materials. The EV maker has applied for tax breaks to build a potential lithium refinery in Texas or Louisiana. Such a move is seen as necessary to achieve Tesla’s ambition of 20 million electric car sales by 2030.
It comes with great risk, though. Lithium refining — complex chemical processing — is a far cry from the carmaker’s core expertise of designing vehicles (see Chapter 2’s discussion of core competence), and relies on the company being able to secure a type of lithium ore known as “spodumene”. (Prices of lithium hydroxide, the refined product, have skyrocketed to more than eight times the level of the start of 2021 at almost $70,000 per ton, close to record highs.) Ford, GM, and Stellantis are following Tesla’s path in investing in lithium mines.
Battery costs are forecast to be $138 per kilowatt-hour in 2024 — the same level as last year. A cost of $100 per KWH is viewed as the level that will make EVs affordable. Industry advancement rests on batteries getting more powerful and cheaper and cheaper every year.
Classroom discussion questions:
- Should automakers go out and buy lithium mines? Why or why not?
- Why is this an important OM issue?
Very much appreciate access to contemporary cases. The textbook is required for the undergrad module in London, England.
Thank you for writing and for using our text in England. Are you teaching from the global edition or the etext?