The global lithium-ion (Li-ion) battery market, a cornerstone of the electric vehicle (EV) and renewable energy sectors, is in the midst of significant fluctuations driven by the volatile prices of key raw materials such as lithium, nickel, cobalt, and graphite.
These materials form the backbone of Li-ion battery cells and, consequently, the cost structure of battery production. The supply-demand dynamics of these critical components play an influential role in shaping the cost trajectory of batteries, affecting the broader energy and mobility industries.
In 2022, the surge in demand for Li-ion batteries resulted in unprecedented price spikes for lithium and other essential materials, pushing the cost of raw materials in a nickel-manganese-cobalt (NMC 811) battery up by as much as $60/kWh. This price hike reflected global supply chain disruptions, heightened demand from electric vehicle production, and an overall scarcity of materials like lithium and cobalt. However, by 2023, prices began to ease as the market adapted, and the contribution of these materials to battery costs fell to around $20/kWh—a stark reduction attributed to the stabilisation of supply and demand pressures.
While the decline in raw material prices provides temporary relief to manufacturers, it also reflects a broader shift in the Li-ion battery landscape. According to IDTechEx’s report, 'Li-ion Battery Market 2025-2035: Technologies, Players, Applications, Outlooks and Forecasts,' the market for Li-ion battery cells is projected to exceed $400 billion by 2035. This anticipated growth is underpinned by policy support for electric vehicles and renewable energy deployment across the globe, which continues to foster stable demand.
Competitive Landscape
One of the most notable developments in recent years has been the rapid rise and subsequent correction in the market for lithium iron phosphate (LFP) batteries, IDTechEx Research Director Dr Alex Holland, has said.
LFP batteries, favoured for their lower cost compared to NMC-based batteries, saw significant price hikes in 2022 as demand surged—particularly in China, which dominates LFP production. This surge led to overcapacity by 2023, with LFP cathode prices dropping to as low as $5/kg, creating an intensely competitive environment for producers.
For consumers, these lower prices offer an advantage, as battery costs form a substantial portion of the overall expense of electric vehicles. However, for manufacturers—especially new entrants—the challenge of competing in a market with thin margins and price pressures can be formidable. Scaling production outside of Asia, where companies benefit from lower labour costs and integrated supply chains, has proven difficult. For instance, companies like Northvolt have faced challenges in scaling production quickly enough to compete with low-cost imports from China.
The influx of affordable EVs from China, often powered by cost-effective LFP batteries, has sparked concerns among European and North American automakers. As these markets ramp up their own production capacities, they must contend with the competitive pricing structures enabled by China's economies of scale, even as they navigate the complexities of building robust supply chains closer to home.
Policy Support, Technological Advancements
Despite these challenges, the outlook for the Li-ion battery market remains optimistic. Governments worldwide are implementing policies aimed at driving the adoption of EVs and renewable energy systems, both of which are heavily reliant on Li-ion battery technology. In the US, the Inflation Reduction Act and emissions performance standards in Europe are shaping stable demand for EVs, providing a critical buffer against market volatility.
Beyond policy, technological innovation is playing a pivotal role in shaping the future of Li-ion batteries. Advances in solid-state batteries, silicon anodes, optimised cell designs, and more sophisticated battery management systems are pushing the envelope, offering batteries that are safer, more energy-dense, faster-charging, and longer-lasting. While lowering costs remains a priority, these advancements are gradually improving the value proposition of battery-powered EVs and stationary energy storage systems.
However, the path ahead is not without obstacles. Battery prices are increasingly tied to the availability and price of raw materials, and while low costs benefit consumers, they can stifle investment in new technologies and discourage new entrants. This issue is felt acutely in regions like Europe and North America, where the push to establish local production capacity faces stiff competition from established players in Asia.
Conclusion
The Li-ion battery market is at a critical juncture, balancing the pressures of volatile raw material prices, competitive market dynamics, and the promise of technological innovation. While the medium- to long-term outlook remains positive—buoyed by policy support and advancements in battery technology—manufacturers must navigate a challenging landscape of fluctuating costs and intense competition. Ultimately, those who can leverage innovation and scale efficiently will be well-positioned to capitalise on the substantial growth opportunities that lie ahead in this rapidly evolving market.
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