Abstract
The recent rise in demand for electric vehicles (EV) and energy storage supporting power systems has increased the demand for lithium-ion batteries (LIB), and it is expected to be more significant in near future. However, materials for LIB, such as lithium and cobalt, may face limited supply due to oligopolistic market characteristics, and this can have a significant impact on prices of LIB materials. This paper examines the dynamics of LIB raw material prices (cobalt, lithium, nickel, and manganese prices) with EV demand using the Vector Error Correction Model (VECM) method. The result shows that the EV demand is important in short-run dynamics of cobalt and lithium prices, which indicates that the recent increase in lithium and cobalt prices has been caused by increase in EV demand. In the long-run equilibrium, lithium and nickel prices move inversely with cobalt prices. The impulse response results confirm that EV demand has an immediate positive effect on cobalt price, and the effect maintains over two years. On the other hand, the EV demand shock to nickel, lithium, and manganese prices is relatively small. This study also analyses the impact of recycling policy of LIB on material prices. Finally, the paper discusses the policy implications for stabilizing material prices of LIB.
Highlights
We evaluate the effect of the electric vehicle (EV) demand shock on the prices of major materials in lithium ion batteries, and lastly we estimate the impact of recycling of Lithium-Ion Battery (LIB) on those prices of four metals
Cobalt prices are the most sensitive to impact of changes in EV demand among secondary battery material prices, and the effect is maintained for the longest duration
Results of Vector Error Correction Model (VECM) estimation show that EV demand is important to short-run dynamics of cobalt and lithium price at a 5% significance level; that is, the demand for secondary batteries, mostly by EVs, has led to a sharp increase in the prices of lithium and cobalt
Summary
The U.S Energy Information Administration (EIA) estimated that projected cumulative sales and annual sales of EV in 2025 will be approximately 55 million and eight-million, respectively, based on 10 major EV manufacturer’s target sales The reason of this significant sales increase is because the price of EV is rapidly approaching that of conventional vehicle, which is mainly caused by a significant decrease in the price of Lithium-Ion Battery (LIB) pack. The price of LIB pack dropped down to one-fifth level in seven years from approximately $1000/kWh in 2010 to $209/kWh in 2017, and it is expected to decrease below $100/kWh by 2025 [1] This cost of LIB pack fall makes EV price competitive level to conventional vehicle and it brings the tipping point of active spread of EVs sooner [2,3].
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