Nomura In-Depth Report: Global demand for automotive power batteries will grow by 18% per year in the next five years

With the promotion of global policies and measures, the field of electric vehicle batteries is ushering in unprecedented development prospects.

At present, countries around the world have promulgated bills and measures to promote the development of the electric vehicle industry, trying to expand the development of the electric vehicle industry and supply chain in their own countries. Stimulated by the policy, Nomura analysts Cindy Park, Yu Okazaki and others pointed out in a report published on March 21 that in the next five years, global demand for electric vehicle batteries will grow at an annual rate of 18%, reaching 1647GWh in 2028 and 2107GWh in 2030.

Nomura said that with the gradual withdrawal of China's electric vehicle subsidies, coupled with the destocking of the supply chain in the first quarter of this year, China's electric vehicle industry will be in a moderate growth environment this year.

At the same time, due to the strategic price reduction adopted by industry leaders such as CATL, competition in the battery market may intensify, and prices in the domestic market will further decline.

Nomura expects the average selling price of power batteries to be $136/kWh in 2030, down 9% year-on-year, mainly due to the decline in raw material prices. Nomura believes that with the advancement of cost reduction actions, power battery prices will decline by 3% per year from 2024 until 2030.

In addition, the price of lithium carbonate entering a downward channel will also help ease the profit pressure of battery manufacturers.

In 2030, the global demand for power batteries will reach 2107GWh

Nomura predicts that global battery demand for electric vehicles (including pure electric/plug-in hybrid vehicles) will grow at an annual rate of 17% from 2023 to 2030; By 2030, the demand for power batteries will reach 2107GWh, which is based on the fact that the penetration rate of electric vehicles will reach 34.6% in 2030:

We forecast that EV battery demand will grow by 43% year-on-year to 706GWh in 2023, with an average annual growth rate of 18% and 17% in 2023-2028 and 2023-2030, respectively, reaching 1647GWh in 2028 and 2107GWh in 2030.

This is based on global EV penetration of 15.8%, 29.8% and 34.6% in 2023, 2028 and 2030 (11.8% in 2022) or 13.7 million EV shipments in 2023.

From January to February 2023, EV shipments in 15 countries increased by 24% y/y to 1.4 million units, with China, the US and 10 European countries increasing by 19%, 94% and 5% y/y. China, the United States and ten European countries account for 59%, 16% and 21% of global EV shipments.

Specifically, Nomura expects global sales of new energy vehicles (including hybrid, pure electric, plug-in hybrid and fuel cell vehicles) to reach 64.5 million units and electric vehicles (including pure electric/plug-in hybrid vehicles) to reach 35.6 million units in 2030:

Our global automotive team predicts that NEV sales will reach 35.9 million units/64.5 million units in 2025F/30F. EV sales will reach 20.2 million units/35.6 million units, with a market share of 22.0%/34.6%.

In terms of production capacity, by the end of 2022, the global power battery production capacity was 1205GWh, and the shipment volume was 497GWh, and Nomura expects the global production capacity to grow to 5419GWh by the end of 2030, which means that between 2022 and 2030F, the capacity growth rate will be 21%, while the capacity between regions will also change:

By region, Asia/North America/Europe outside of China should account for 73%/5%/6%/16% of global battery production capacity in 2023F, which according to our estimates will change to 52%/4%/17%/27% in 2030F.

Battery prices will start to decline in 2023

Nomura said that as raw material metal prices fall, the average price of batteries will decline in 2023, which is expected to fall by 9%:

For the seven battery manufacturers we cover – Panasonic, CATL, LGES, SK On, Samsung SDI, EVE and Guoxuan Hi-Tech – we forecast an average selling price of $136/kWh in 2023, down 9% year-over-year.

We estimate that the average price increase in 2022 increased by 13% due to significant metal price increases. In 2022, the average price of lithium carbonate/nickel was $71,653/ton and $26,187/ton, respectively, up 287%/42% year-on-year.

For 2023F, we estimate that ASP (average selling price) will fall by 9% as we think these metals will fall in price.

So far this year, though, some cathode material manufacturers say their ASPs have risen. Starting in 2024F, we predict that EV battery prices will fall by 3% annually until 2030F, as part of cost reduction.

In addition, Nomura said that as car companies want to reduce costs, all battery manufacturers are also under pressure to reduce costs and average selling prices. For example, Tesla said at its investor day in March 2023 that it plans to reduce costs by 50% through scale growth, greater productivity/overhead efficiency/supplier size, product improvements, engineering changes, and localization.

Nomura believes that these goals should be a shared vision for the electric vehicle industry, not just Tesla's related vision.

As far as the seven battery companies covered are concerned, Nomura said that even if battery prices decline in the future, China's battery companies are expected to remain competitive:

The average operating margin for the seven companies in 2022 was 1.6%, and we forecast that this figure will rise to 5.1%/25F, respectively, in 2023F/7.1%.

We estimate that the average price of the three Korean battery companies (LGES, SDI, SK ON) in 2022 is 44% higher than that of Chinese battery manufacturers (CATL, BYD (not covered), EVE Lithium Energy, Guoxuan Hi-Tech). Since 50-60% of China's battery production is based on low-cost LFP, the average battery price in China is lower than that in Korea/Japan.

This competitive pricing along with above-industry profitability drives strong battery demand and supply growth. While we expect this price gap to persist across countries, margins are likely to converge in the coming years.

Battery technology: higher energy density, longer life and better thermal stability

As far as the technical route of power batteries is concerned, Nomura believes that power batteries are migrating towards higher energy density, longer life and better thermal stability:

We expect the energy density of NCM/NCMA EV batteries to reach 720-750Wh/L (280-310Wh/kg) in 2023, and after 2025, the energy density is expected to migrate to 800Wh/L (320Wh/kg).

In addition, we believe that the silicon mixture in the anode has the potential to rise from about 5% today to 5-8% (NCM).

As for lithium iron phosphate batteries, Nomura estimates that its current energy density is about 150Wh/kg, and the goal is to move towards 800Wh/L (more than 320Wh/kg) in the next few years in order to provide electric vehicles with a range of about 600-700km per charge and less than 15 minutes of charging time:

To achieve this, we estimate that cathodes with a nickel content of more than 90%, silica graphite of about 10%, and wet diaphragms with a thickness of less than 9 microns are required.

Lithium/nickel prices: 2023/2024F is expected to decline

Nomura believes that given that lithium supply growth in recent years has exceeded demand growth, lithium prices are expected to decline by 35%/20% year-on-year in 2023/2024; The supply of nickel has increased slightly, and prices may also be flat or rise.

We estimate that global lithium mine supply will grow at a CAGR of 33% between 2022 and 2025, driven by the expansion of existing capacity and the commissioning of new projects, which will exceed our estimate of 18% CAGR for lithium demand over the same period.

A more balanced supply and demand scenario will provide more room for lithium prices to decline, which is expected to fall by 35%/20% year-on-year in 2023/24.

We remain confident that the electrification trend will remain strong in the automotive industry, and the normalization of lithium prices should provide further room for cost optimization in the EV supply chain.

Lithium prices rose significantly between the second half of 2021 and the first half of 2022, driven by a surge in demand for electric vehicle batteries. By the end of June 2022, lithium prices reached $71,376 per tonne (up 401% year-on-year). Throughout 2022, lithium prices remained high and peaked at $81,412 per tonne in mid-December. In January and February 2023, lithium prices fell by 7% and 13% month-on-month, respectively.

Nomura said this was mainly due to increased lithium mining volumes from major miners, easing supply crunch, and lower demand for electric vehicles in early 2023.

In addition, while driven by the electric vehicle boom and rising lithium prices in 2021-22, the global lithium refining market will become more fragmented. Nomura continues to believe that leading lithium producers with high-quality mineral resources and lower production costs should maintain their competitive advantage with high-end customers and better profitability.

As a result, Nomura expects global lithium refining capacity to grow at a CAGR of 26% between 2022-25, expanding from 1.064 million tonnes of lithium carbonate equivalent in 2022 to 2.12 million tonnes of lithium carbonate equivalents in 2025.

In terms of nickel prices, Nomura expects that there may be a shortage of high-quality nickel supply in the medium term, as nickel products are divided into different grades according to purity, and first-class nickel is the only suitable raw material for the production of nickel sulfate for battery manufacturing, and production costs are often high.

In the first half of 2022, due to geopolitical issues, nickel prices soared, reaching $29,886 per ton at the end of 2022, up 55% from July 2022.

However, while nickel prices remain high for now, they fell to $24,358 as of March 3, 2023 due to weak demand for electric vehicles and increased global production.

Nomura said production of high-purity nickel from subsequent mines in Indonesia will increase due to the refining of low-purity nickel.

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