KUALA LUMPUR (Dec 8): Fitch Solutions Country Risk & Industry Research said higher metals prices used in lithium-ion batteries (LiBs) will negatively impact the profit margins for electric vehicle (EV) makers and battery manufacturers.

In a report on Tuesday (Dec 7), the firm said OEMs will shift towards the less costly Lithium Iron Phosphate (LFP) battery chemistry to circumvent rises in more nickel-rich battery chemistries while deploying cell-to-pack designs to drive overall costs lower.

It said automakers will look to cushion the blow of higher battery costs for consumers, however downside risks are present which will impact global adoption of EVs, especially in countries where incentives are not available.

EV battery prices will remain high in 2022

Fitch Solutions said as battery metals remain one of the largest contributors to the cost of battery manufacturing, higher prices in 2021 and 2022 will squeeze the profit margins of battery manufacturers and automakers alike as more EV models are deployed.

“We therefore expect higher input costs to result in upside risks for battery prices in 2022 as long-term agreements with mining firms for the supply of key metals are entered into at substantially higher prices compared to 2020.

“Over the longer term, developments in the increase of battery recycling will lead to a more favourable battery metals supply outlook as a ‘closed-loop’ metals supply environment offers better pricing mechanisms amid more metals being reused in newer EVs going forward,” it said.

Fitch Solutions currently forecasts global EV sales to rise by 40.3% in 2022 as demand remains elevated amid the need to decarbonise the global vehicle fleet.

It said Asia, Europe and North America will remain dominant markets for EVs over the 2021-2030 forecast period. These markets offer a large market to tap while developing countries continue to lag behind with the possibility of higher EV prices stunting growth in these markets.