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Storage Market & Supply Chain

Tier-1 battery manufacturers could drive down lithium battery costs by 50%

June 1, 2021 ESS InfoLink


Composition of lithium-ion ESS 

An energy storage system (ESS) contains several components. The most fundamental is cells, which comprise cathode, anode, separator, electrolyte, and metal foil. Many of those cells are connected in series or in parallel, combined with a BMS, and thus consist of a battery pack. Several battery packs are put together and monitored with manage systems such as BOS and EMS. Then, transformers and power conversion systems (PCS) covert DC currents to AC currents. All of these built together completes an energy storage system that is ready to be connected to the grid and come into operation. In terms of the cost ratio of each unit, battery packs, PCS, EPC, and other respectively account for 50-60%, 10-15%,15-25%, and 5-10% of total system costs.


Lithium-ion battery price trend

The high price and inferior cycle life performance of lithium-ion batteries restricted their applications in some markets. However, the rapid rise of EV market over the past two years has driven battery technology to advance and prices to reduce, opening a door for the energy storage market. Taking 2020 as a watershed year, lithium-ion battery price trends can be divided into two stages. Over the previous decade, cells had experienced dramatic cost reduction and greater industrial concentration. The coming decade will see slower cost decreases and increasing competitions among companies around the globe. 


NCM and LFP battery

There are primarily two types of lithium-based ESS, namely NCM, NCA and LFP. In 2020, costs of ESS using NCM, NCA batteries and LFP batteries sat at USD 315/kWh and USD 277/kWh, respectively. LFP batteries cost less, for they are much cheaper cathode material compared to NCM. Generally, LFP batteries have more advantages in terms of price and safety. Senior analyst Yuan Fang-wei of ESS InfoLink projects that both types of ESS will see costs drop by 50% over the next decade, reaching below USD 150/kWh. 


Can Tesla accelerate lithium-ion battery cost reduction? 

Source: Tesla

Presently, the cost reduction of lithium-ion battery has slowed and such trend will last in the next five to ten years. As EV and energy storage markets grow rapidly, battery prices, which decline at a snail’s pace, will hinder the growth of EV market, for EVs are still too pricy for most customers. 

EV giant Tesla announced a plan to halve the cost per kWh of batteries on the Battery Day 2020. The company seeks to optimize costs through improvements in five key areas – cell design, streamlining of cell production, anode materials innovation, cathode material transformation, and integration of batteries in vehicles. Tesla expects to cut 50% of battery costs by 2025, markedly accelerating cost reduction pace. Perhaps, Tesla’s determination will drive down prices for lithium-ion batteries, accelerating energy storage deployment.  

Source: Tesla

ESS InfoLink analyst accords with Tesla’s approaches in cost reduction. For example, module optimization has been applied to LFP battery, such as BYD’s blade battery and CATL’s CTP technology; in the future, it will be applied to NCM, NCA battery, which is more expensive and thus plays an essential role in cost reduction. 

With technology advancing and markets demanding, cell costs are bound to be halved, not in five years and not by Tesla alone, but requiring the support and progress of the entire supply chain. 2025 may be a pivotal year to see the mass production of next-generation lithium-ion battery (solid-state battery,) significantly influencing lithium-ion battery market. Against these backdrops, ESS InfoLink is optimistic about battery cost reduction.   

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