Battery Suppliers, Automakers To Take Charge As Prices Rise, Report Says

HONG KONG (S&P Global Ratings) May 18, 2022--The race to electrify the way we get around is about to get more expensive. The price of raw materials used in batteries for electric vehicles (EVs) is rising. This is reversing a long-term trend for declining battery prices.

This is according to a report published by S&P Global Ratings today titled, "Battery Suppliers, Automakers To Take Charge As Prices Rise."

Key Takeaways from the report:

•	Battery prices are set to halt their long-running decline and rise in 2022 and remain high in 2023 because of a surge in the cost of raw materials.
•	Automakers will likely incur higher spending on battery supply chains, but we don't view this as credit negative now since it allows them to lift production.
•	Our rated battery issuers should continue to lead the market and they are taking action to protect profitability.

Despite the cost surge, decarbonization initiatives will likely drive up EV penetration to 15%-20% of global auto sales by 2025. We estimate battery demand to post a compound annual growth rate of 30%-40% over 2022-2025 and reach 1.0-1.1 terawatt hours in 2025.

This will push automakers to explore more tie-ups, widen their supplier networks and potentially cut out the middleman by directly entering the upstream supply chain. Exploring different battery technology is also an option to control costs over the next two years.

The top three global battery players--Contemporary Amperex Technology Co. Ltd. (BBB+/Stable/--), LG Chem Ltd. (BBB+/Positive/--), and Panasonic Holdings Corp. (A-/Stable/A-2)--should continue to account for more than 50% of market share over the next two to four years, at least. They will likely take a more cautious approach to profitability management and become more stringent on the execution of cost pass-through mechanism to automakers after seeing profitability deteriorate in the first quarter of 2022.

This report does not constitute a rating action.

The report is available to subscribers of RatingsDirect at www.capitaliq.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to research_request@spglobal.com. Ratings information can also be found on S&P Global Ratings' public website by using the Ratings search box located in the left column at www.standardandpoors.com. Members of the media may request a copy of this report by contacting the media representative provided.