Falling commodity prices make electric vehicles more affordable

big picture: The prices of raw materials needed to make electric vehicles have fallen sharply since January. The situation puzzled some analysts, who fully expected electric vehicle prices to remain high or even rise, effectively slowing down the transition from internal combustion engines to electric motors.

According to a supply chain analyst Reference Minerals, the price of lithium used in electric vehicle batteries has dropped nearly 20 percent since January (as of March 20). Copper, which is found in both batteries and electric vehicle engines, has fallen in price by about 18 percent over the same period. The price of cobalt, another key material in batteries, has halved since the beginning of the year.

Savings are already trickling down to consumers. Tesla recently implemented its fifth price adjustment for 2023, cutting the prices of its two most expensive electric vehicles to make them affordable to more buyers. The Model S and Model S Plaid are $5,000 cheaper after the latest cuts. The Model X SUV, meanwhile, got an even bigger $10,000 discount.

Kelley Blue Book data shows that the average selling price of an electric car in the US fell by $1,000 from January to February.

“People’s desire to own Tesla is extremely strong,” Tesla CEO Elon Musk said during the company’s investor day earlier this month. “The limiting factor is their ability to pay for Tesla,” he added.

Others expressed similar sentiments. Kang Sun, CEO of battery startup Amprius Technologies, said New York Times that cost is the main hurdle for electric vehicles right now. Sun specifically mentioned lithium as a commodity that could drive sales of new electric vehicles.

The reasons for the fall in prices are discussed. Some point to a slowdown in sales growth in China and Europe after the end of subsidies for electric vehicles. Others believe that new mines and refineries coming online are helping ease restrictions on the supply of materials like lithium, but if so, it could be addressed in a timely manner as demand for lithium is expected to grow 42 times by 2050 to support the planned transition to clean energy.

Image credit: Charger Andrew Roberts, My by pixels

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