Prices of lithium-ion battery packs have dropped by 14% to a record low of $139/kWh this year due to falling raw material and component prices, research firm BloombergNEF (BNEF) has found.

The prices have dropped even as production capacity increased across all parts of the battery value chain.

Battery pack prices saw an unprecedented rise to $151/kWh in 2022. This year, though, prices have been on a downward slide, causing demand growth to fall short of some industry expectations.

According to BNEF’s analysis, the battery demand across electric vehicles (EV) and stationary energy storage continues to be on track to grow at 53% year-on-year, reaching 950 GWh in 2023.

However, this has not improved outcomes for major battery manufacturers, as they reported lower plant utilization rates. This caused several EV and battery markers to revisit their production targets, thus impacting the battery prices.

Across the average of multiple battery end-uses, the prices for battery electric vehicle (BEV) packs stood at $128/kWh on a volume-weighted average basis in 2023. However, at the cell level, average prices for BEVs were just $89/kWh. This means the cells account for 78% of the total pack price, on average.

BNEF surveyed miners and metal traders who expect the prices for key battery metals like lithium, nickel, and cobalt to ease further next year. As per the analysis, BNEF expects average battery pack prices to drop again next year, reaching $133/kWh.

On a regional basis, average battery pack prices were lowest in China, at $126/kWh. Packs in the U.S. and Europe were 11% and 20% higher, respectively. Higher prices reflect the relative immaturity of these markets, higher production costs, lower volumes, and a diverse range of applications. There was also intense price competition within China this year as battery manufacturers ramped up production capacity, aiming to grab a share of the growing battery demand.

BNEF said the industry continues to switch to the low-cost cathode chemistry known as lithium iron phosphate (LFP). These packs and cells had the lowest global weighted average prices, at $130/kWh and $95/kWh, respectively. This is the first year that BNEF’s analysis found LFP average cell prices falling below $100/kWh. On average, LFP cells were 32% cheaper than lithium nickel manganese cobalt oxide cells in 2023.

“It is another year where battery prices closely followed raw material prices. In the many years that we’ve been doing this survey, falling prices have been driven by scale learnings and technological innovation, but that dynamic has changed. The drop in prices this year was attributed to significant growth in production capacity across the value chain in combination with weaker-than-expected demand,” said Evelina Stoikou, energy storage senior associate at BNEF.

Earlier this year, the price drop in lithium carbonate, which is primarily used in batteries, increased hopes among industry stakeholders about EVs becoming more affordable.