The lithium price crash should be good news for EV makers. It isn’t.

Prices of lithium, a key constituent of electric vehicle (EV) batteries, crashed by a staggering 80% from November 2022 to February 2024. That should have been good news for EV makers, which had been slashing prices to sell their vehicles for less. However, according to India’s largest EV maker, the crash may instead have dampened demand by causing potential customers to put off their purchase of an EV in expectation of even lower prices ahead.

PB Balaji, group chief financial officer, Tata Motors, said in an earnings call last week, “One of the reasons we suspect the entire global EV market is in a bit of turmoil is because of the sharp corrections in prices (of EVs), where people seem to have now adopted a wait-and-watch attitude rather than secure what’s there in front of them.”

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In February, Tata Motors cut the prices of its EVs by 1.8% to 8% depending on the model and variant, while MG Motor India, India’s second-largest EV maker in terms of sales, dropped the prices of its flagship ZS EV by up to 17%. The attractive deals did spark a brief revival but sales started to moderate once again in April (they were up 23% year-on-year that month, but saw an equivalent decline from the previous month).

Sales growth slows down

According to official data, EVs accounted for 2.2% of total passenger vehicle registrations in April, down from 2.9% in March, and only marginally higher than 2.1% in April last year.

The growth of EV sales in India and worldwide has moderated over the past year as early adopters have given way to more demanding mass-market buyers. The huge decline in battery prices and the decision of some automakers, including Tesla, to promptly pass on price cuts to customers may have made this worse.

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Balaji said, “We saw a sharp correction in battery prices, which we passed on to customers. When the accounting happens we will definitely have more credits coming in, in subsequent quarters as well. I believe prices are now stabilising, going by the prices of lithium hydroxide prices or lithium carbonate.

“Therefore, I would expect the fall in prices to flatten. The likelihood of prices going up is lower than the chances of them stabilising. We’ll have to wait and see how the EV market evolves as price instability returns… Some degree of stability will bring calmness to the market and calmness is important for growth”.

Lithium price trends 

Recent trends in lithium prices point in this direction amid efforts to curb its oversupply in China. ‘Prices for battery-grade lithium carbonate and lithium hydroxide on the basis of cost, insurance and freight to Northeast Asia were range-bound at $13,000 to $15,200 per metric tonne (mt) throughout the first quarter of the year,” S&P Global Commodity Insights said in a report dated 16 April.

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“Asian lithium prices are likely to be largely steady around 100,000 yuan ($13,800) per mt in the first half of the second quarter even though participants do not discount the possibility of levels softening amid the prevailing oversupply, while demand is expected to remain range-bound well into Q2 after a modest uptick in mid-March. The trajectory of prices beyond April, however, will hinge to a large extent on whether downstream demand picks up enough to curb downward pressure from oversupply,” the report added.

For Tata Motors, the biggest hurdle for EV demand now is the slow development of charging infrastructure. “It is normal for any developing market to hold on to stability for a bit and then work on what’s stopping adoption, clear the pathway, and start acting again,” Balaji said.

“We don’t have a growth crisis. We are looking at how to step up penetration of EVs. This year we have 14 models and a 73% share of the market. More launches and more models are only going to lead to greater disruption in the market,” he added.

Also read: India sets up task force to accelerate EV drive

Automakers including Tata Motors, Mahindra & Mahindra, Maruti Suzuki and Hyundai are gearing up to launch as many as eight new EV models in 2024, and with lithium prices seemingly stabilising, fence-sitters may start buying EVs again.

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