Trends in electric vehicle batteries – Global EV Outlook 2024 – Analysis - IEA (2024)

Increasing EV sales continue driving up global battery demand, with fastest growth in 2023 in the United States and Europe

The growth in EV sales is pushing up demand for batteries, continuing the upward trend of recent years. Demand for EV batteries reached more than 750GWh in 2023, up 40% relative to 2022, though the annual growth rate slowed slightly compared to in 2021‑2022. Electric cars account for 95% of this growth. Globally, 95% of the growth in battery demand related to EVs was a result of higher EV sales, while about 5% came from larger average battery size due to the increasing share of SUVs within electric car sales.

The United States and Europe experienced the fastest growth among major EV markets, reaching more than 40% year-on-year, closely followed by China at about 35%. Nevertheless, the United States remains the smallest market of the three, with around 100GWh in 2023, compared to 185GWh in Europe and 415GWh in China. In the rest of the world, battery demand growth jumped to more than 70% in 2023 compared to 2022, as a result of increasing EV sales.

In China, PHEVs accounted for about one-third of total electric car sales in 2023 and 18% of battery demand, up from one-quarter of total sales in 2022 and 17% of sales in 2021. PHEV batteries are smaller than those used in BEVs, thereby contributing less to increasing battery demand. In recent years, Chinese carmakers have also been marketing more extended-range EVs (EREVs), which use an electric motor as their unique powertrain but have a combustion engine that can be used to recharge the battery when needed. EREVs typically have a battery size about twice that of a PHEV, enabling a real-world electric range of around 150km compared to 65km for traditional PHEVs. With an ICE on board, EREVs can reach ranges of around 1000km when needed. In 2023, EREVs accounted for 25% of PHEV sales in China, up from about 15% in 2021-2022. Negligible EREV sales are recorded in other regions.

More batteries means extracting and refining greater quantities of critical raw materials, particularly lithium, cobalt and nickel

Rising EV battery demand is the greatest contributor to increasing demand for critical metals like lithium. Battery demand for lithium stood at around 140kt in 2023, 85% of total lithium demand and up more than 30% compared to 2022; for cobalt, demand for batteries was up 15% at 150kt, 70% of the total. To a lesser extent, battery demand growth contributes to increasing total demand for nickel, accounting for over 10% of total nickel demand. Battery demand for nickel stood at almost 370kt in 2023, up nearly 30% compared to 2022.

High levels of investment in mining and refining in the past 5 years have ensured that global supply can comfortably meet demand today, not only for EVs but also in historical markets including portable electronics, ceramics, metals and alloys. In 2023, the supply of cobalt and nickel exceeded demand by 6.5% and 8%, and supply of lithium by over 10%, thereby bringing down critical mineral prices and battery costs. While low critical mineral prices help bring battery costs down, they also imply lower cash flows and narrower margins for mining companies. Compared to just a few years earlier, overcapacity means that many companies are now struggling to stay afloat (see later section on trends in the EV industry). Mining and refining will need to continue growing quickly to meet future demand, to avoid supply chain bottlenecks and make supply chains more resilient to potential disruptions. Doing so will also require striking a balance between remaining profitable while competing on prices. Innovative technologies such as sodium-ion batteries can potentially mitigate demand for critical minerals, together with the rise of mature battery chemistries requiring lower amounts of critical metals, such as lithium iron phosphate (LFP).

The majority of battery demand for EVs today can be met with domestic or regional production in China, Europe and the United States. However, the share of imports remains relatively large in Europe and the United States, meeting more than 20% and more than 30% of EV battery demand, respectively. China is the world’s largest EV battery exporter, with around 12% of its EV batteries being exported.

Production in Europe and the United States reached 110GWh and 70GWh of EV batteries in 2023, and 2.5million and 1.2million EVs, respectively. In Europe, the largest battery producers are Poland, which accounted for about 60% of all EV batteries produced in the region in 2023, and Hungary (almost 30%). Germany leads the production of EVs in Europe and accounted for nearly 50% of European EV production in 2023, followed by France and Spain (with just under 10% each).

Battery production in China is more integrated than in the United States or Europe, given China’s leading role in upstream stages of the supply chain. China represents nearly 90% of global installed cathode active material manufacturing capacity and over 97% of anode active material manufacturing capacity today. The only countries with significant shares of cathode active material manufacturing capacity outside of China today are Korea (9%) and Japan (3%). Different supply chains are, however, required for different chemistries. China is home to almost 100% of the LFP production capacity and more than three-quarters of the installed lithium nickel manganese cobalt oxide (NMC) and other nickel-based chemistries production capacity, compared to 20% in Korea. LFP is the most prevalent chemistry in the Chinese electric car market, while NMC batteries are more common in the European and American electric car markets.

China’s current leading role in battery production, however, comes at the cost of high levels of overcapacity. In 2023, excluding portable electronics, China used less than 40% of its maximum cell output,1 and cathode and anode active material installed manufacturing capacity was almost 4 and 9 times greater than global EV cell demand in 2023. To take advantage of some of this excess capacity, China is the biggest exporter of EV cells, cathodes and anodes globally. However, this has significantly decreased producers’ margins, which may put some at risk if they do not find enough customers outside of China.

In 2023, the installed battery cell manufacturing capacity was up by more than 45% in both China and the UnitedStates relative to 2022, and by nearly 25% in Europe. If current trends continue, backed by policies like the US IRA, by the end of 2024, capacity in the United States will be greater than in Europe. As manufacturing capacity expands in the major electric car markets, we expect battery production to remain close to EV demand centres through to 2030, based on the announced pipeline of battery manufacturing capacity expansion as of early 2024.

At the same time, international co-operation and trade in battery technologies will continue to underpin EV market expansion. Just as for current capacity, announcements for additional EV battery manufacturing capacity in Europe and the United States are primarily made by foreign companies headquartered in Asia. Korean companies, for example, account for over 350GWh in manufacturing capacity outside Korea, Japanese companies for 57GWh outside Japan, and Chinese companies for just under 30GWh outside China. About 75% of existing European manufacturing capacity is owned by Korean companies, with LG’s plant in Poland accounting for 50% alone. Capacity in the United States is currently led by four companies: Tesla, Panasonic, SKI and LG. China’s capacity is slightly more fragmented across different manufacturers, but the three largest producers – CATL, BYD and Gotion – account for nearly 50% of domestic capacity.

Stabilising critical mineral prices led battery pack prices to fall in 2023

Turmoil in battery metal markets led the cost of Li-ion battery packs to increase for the first time in 2022, with prices rising to 7% higher than in 2021. However, the price of all key battery metals dropped during 2023, with cobalt, graphite and manganese prices falling to lower than their 2015-2020 average by the end of 2023. This led to an almost 14% fall in battery pack price between 2023 and 2022, despite lithium carbonate prices at the end of 2023 still being about 50% higher than their 2015-2020 average. The last year in which battery price experienced a similar price drop was 2020.

In relative terms, the LFP chemistry was most affected by the surge in battery mineral prices in the last two years. Lithium is the only critical mineral in LFP, and its price grew more than that of other minerals, and remained above historical averages for longer. In comparison, NMC batteries were less than 25% more expensive than their LFP equivalents in 2023, down from a premium of 50% in 2021. LFP batteries remain significantly cheaper than NMC, and their price has recently decreased rapidly.

Further innovation-driven improvements are foreseen for both chemistries through recent battery pack configurations, such as cell-to-pack2 (already being adopted for LFP) and cell-to-chassis. In addition, continued innovation in manufacturing is helping to achieve improved battery performance, for example through multi-layer electrodes enabling ultra-fast charging. Efforts to increase the manganese content of both NMC and LFP are also underway, with the aim of either increasing energy density while keeping costs low (LFP) or reducing cost while maintaining high energy density (NMC).

In terms of regional competitiveness, batteries are cheapest in China, followed by North America, Europe and other Asia-Pacific countries. However, battery prices across regions, including both batteries produced locally and imports, have been converging in the past few years, indicating that EV batteries are moving towards becoming a truly globalised product.

Nonetheless, battery manufacturing in Europe and the United States remains more expensive than in China. For example, producing a battery cell in the UnitedStates is nearly 20%3 more expensive than in China, even when assuming that material costs do not vary regionally. In reality, Chinese manufacturers are likely to benefit from preferential prices from local material producers and a more integrated supply chain within China, which could mean the manufacturing cost gap is even larger. Moreover, contrary to the UnitedStates and Europe, most Chinese batteries are LFP, which is more than 20% cheaper to produce than NMC.

The battery industry is accelerating plans to develop more affordable chemistries and novel designs

Over the last five years, LFP has moved from a minor share to the rising star of the battery industry, supplying more than 40% of EV demand globally by capacity in 2023, more than double the share recorded in 2020. LFP production and adoption is primarily located in China, where two-thirds of EV sales used this chemistry in 2023. The share of LFP batteries in EV sales in Europe and the United States remains below 10%, with high-nickel chemistries still most common in these markets.

LFP was first invented in the United States in 1997, and further developed in Canada through the early 2000s, but thanks to a favourable intellectual property agreement, China has been the only country mass-producing LFP batteries since the 2010s. In 2022, the core LFP patents expired, sparking interest in production outside of China. The recent surge in interest in LFP chemistries has led to major investments in Morocco, which is home to the world’s largest phosphate reserves and, importantly, holds free-trade agreements with the UnitedStates and Europe. In 2022, Morocco saw almost as many announced investments to as in the five previous years combined, reaching USD15.3billion. Many of these investments were made by battery industry players (e.g.Gotion, LG, CNGR Advanced Material).

Further declines in battery cost and critical mineral reliance might come from sodium-ion batteries, which can be produced using similar production lines to those used for lithium-ion batteries. The need for critical minerals like nickel and manganese for sodium-ion batteries depends on the cathode chemistry used, but no sodium-ion chemistries require lithium. Similarly to LFP, sodium-ion batteries were initially developed in the UnitedStates and Europe, but today the announced sodium-ion manufacturing capacity in China is estimated to be about ten times higher than in the rest of the world combined. Manufacturing capacity outside China is still at the laboratory or pilot scale.

In 2023, leading battery manufacturers announced expansion plans for sodium-ion batteries, such as BYD, Northvolt and CATL, which initially sought to reach mass production by the end of the same year. If brought to scale, sodium-ion batteries could cost up to 20% less than incumbent technologies and be suitable for applications such as compact urban EVs and power stationary storage, while enhancing energy security.

The development and cost advantages of sodium-ion batteries are, however, strongly dependent on lithium prices, with current low prices discouraging investments in sodium-ion and delaying expansion plans. Supply chain bottlenecks, such as for high-quality cathode and anode materials specific to sodium-ion batteries, could also hinder near-term expansion.