Friday 29 Mar 2024
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KUALA LUMPUR (May 18): The race to electrify the way we get around is about to get more expensive, said S&P Global Ratings.

In a report titled "Battery Suppliers, Automakers To Take Charge As Prices Rise" released on Wednesday (May 18), the agency said the prices of raw materials used in batteries for electric vehicles (EVs) are rising.

It said this is reversing a long-term trend for declining battery prices.

S&P said battery prices are set to halt their long-running decline and rise in 2022 and remain high in 2023 because of a surge in the cost of raw materials.

It said automakers will likely incur higher spending on battery supply chains.

However, the rating agency does not view this as credit negative now since it allows them to lift production.

"Our rated battery issuers should continue to lead the market and they are taking action to protect profitability.

"Despite the cost surge, decarbonisation initiatives will likely drive up EV penetration to 15%-20% of global auto sales by 2025.

"We estimate battery demand to post a compound annual growth rate of 30%-40% over 2022-2025 and reach 1.0-1.1 terawatt hours in 2025," it said.

S&P said this will push automakers to explore more tie-ups, widen their supplier networks and potentially cut out the middleman by directly entering the upstream supply chain.

Exploring different battery technologies is also an option to control costs over the next two years, it said.

The agency said the top three global battery players — Contemporary Amperex Technology Co Ltd (BBB+/Stable/--), LG Chem Ltd (BBB+/Positive/--), and Panasonic Holdings Corp — will likely take more cautious approaches to profitability management and become more stringent on the execution of cost pass-through mechanism to automakers after seeing profitability deteriorate in the first quarter of 2022.

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