Electric car sales soar despite skyrocketing battery costs

These days, everyone we know seems to be asking us about electric vehicles. Our advice is (of course) to buy one right now. Unfortunately, when we follow these folks, many say the electric vehicle they wanted wasn’t available, or that a look at the prices convinced them to just hang on to their gas guzzlers for now.

Sales of electric vehicles from companies like Austin-based automaker Tesla are growing rapidly. (Source: EVANNEX)

Is this the frustrating new reality? Now that automakers are finally taking EVs seriously and buyers are clamoring for them, are supply chain issues strangling the new EV boom in its cradle?

Well no. As is often the case, personal anecdotes are contradicted by statistics. According to the estimates of EV-Volumes.com, global electric vehicle sales soared nearly 120% in the first quarter of this year. Tesla delivered a record 310,000 electric vehicles in the first quarter, despite the company implementing several price increases in 2021, and another in March 2022.

As always, much of the action takes place in China – Reuters reports that Chinese automakers Nio, XPeng and Li Auto all sold record numbers of electric vehicles in March.

Things are hot in Europe too. A recent Inside electric vehicles headline delivered the disturbing headline that sales of plug-in vehicles in Germany were down. Oh no! But when we clicked, we learned that registrations of plug-in vehicles (pure electric and plug-in hybrid) actually fell in March by 6% year-over-year, but that overall new car sales fell by 17.5%. Moreover, only PHEV sales have fizzled — battery electric vehicle sales have actually increased by 15%. The German market share of plug-in vehicles reaches a record 26%! (The best-selling electric vehicles in Germany so far this year are Tesla’s Model 3 and Model Y.)

Other European markets posted similar gains in March.

Recent world events have swept away the most expert market forecasts like chess pieces. For years, the conventional wisdom has been that EV sales would only take off when battery costs reached the “magic number” of $100 per kilowatt-hour (at the pack level) – a price that would allow EVs to achieve price parity with dinosaur burners. Thanks to supply chain issues, that now seems unlikely. In fact, after years of steadily falling battery costs, most experts expect it. increase this year for the very first time. Reuters reports that the average cost at the cell level increased from $105 last year to $160 in the first quarter of 2022.

Of course, as much as battery costs have skyrocketed, gasoline prices have risen more, thanks to Russia’s invasion of Ukraine, and that’s surely the main reason why the growth in sales of VE is still strong. Will the party continue? The answer depends on several factors.

Margins in the battery industry are slim, so rising costs will be passed on to automakers, and therefore consumers. According to Reuters, the batteries used in China’s best-selling electric vehicle, the tiny Hongguang Mini, can cost up to $1,500 more than last year, or 30% of the car’s list price. Higher prices for electric vehicles are on the way, and they could dampen car buyers‘ enthusiasm for going electric. Fortunately, many industry watchers expect battery costs to resume their downward march in a year or two, once the current wave of investment in raw materials, cell production battery and recycling will start to pay off.

As for the future of oil prices, it depends on so many unpredictable economic and geopolitical developments, including the behavior of various powerful but irrational individuals, that we won’t even hazard a guess, educated or not.



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