Nick Carey and Paul Lienert

(Reuters) – Buyers all over the globe are lining up for electric cars this year, despite sticker prices rising. This is a complete flip on a decade of auto industry wisdom which held that EV sales would only break out if battery costs fell below a certain threshold.

EV demand remains strong this year, even though lithium-ion cell prices have risen from $105 to an average $160 per kilowatthour last year. Due to disruptions in supply chains, sanctions on Russian metallics, and investor speculation, costs rose.

The higher cost of a battery for a small vehicle, such as the Hongguang Mini EV, was almost $1500. This is equivalent to about 30% more than the original sticker price.

However, gasoline and diesel fuel prices for internal combustion cars have risen dramatically since Russia invaded Ukraine. Experts also noted that more people are choosing EVs despite volatile economics.

The cost of EVs has risen by double-digits in price for manufacturers, from Tesla (NASDAQ:), to SAIC-GM-Wuling.

It is possible that more will be forthcoming. Andy Palmer is the Chairman of InoBat, a Slovakian EV battery producer. He says that because margins in this industry are already thin, “rising prices will have to passed onto carmakers.”

Mercedes-Benz and other vehicle manufacturers will shift price increases to their customers, if raw material prices continue rising. Markus Schaefer, Chief Technology Officer at Mercedes-Benz, stated that margins must be maintained.

But, EV buyers have not been discouraged. According to EV volumes.com estimates, the global sales of EVs increased by nearly 120% during the first quarter. China’s Nio (NYSE:), Xpeng (NYSE:) and Li Auto delivered record EV sales in March. In the first quarter, Tesla sold a record 310,000 EVs.

Here’s a graphic: https://tmsnrt.rs/3OjptBX

‘DIFFERENT KIND OF TIPPING POINT’

“There is a different kind of tipping point that we seem to have hit — an emotional or psychological tipping point among consumers,” said Venkat Srinivasan, director of the Center for Collaborative Energy Storage Science at the U.S. government’s Argonne National Laboratory (NYSE:) in Chicago. He stated that EVs would be bought by more people, regardless of their cost.

The spike in battery prices could indicate a temporary halt in the trend of technology advancements and increasing production driving costs down for over three decades. According to industry data, the average $105/kilowatt-hour cost for 2021 was nearly 97% lower than it was in 1991 when it was $7,500.

Here’s a graphic: https://tmsnrt.rs/3JTsiqN

Experts predict that the cost of battery cells could rise for the next one year. However, a big decline is likely to follow big-ticket investment by automakers as well suppliers in refining, mining and battery cell production. This will be followed by diversified raw material sources and an increase in supply to balance the gap from surplus to shortage.

Prabhakar Patel, an ex-LG Chem executive, said that it is like a balloon and would take at most 2023 for the bubble to burst.

British battery manufacturer Britishvolt will launch its battery production in a 45 gigawatt-hour facility in Northeast England by 2024. Chief strategy officer Isobel Sheldon said the advice the company is getting from raw materials suppliers is “don’t fix your prices now, wait for the next 12 months and fix the prices then because everything will be on a more even keel.”

“This over-securing of resources should be behind us by then,” she said. DON’T FORGET TO DEMAND SUPPLY

As a way to signal that EVs are reaching parity in price with other fossil fuels, the industry has waited since long. Analysts say that this may not be as important with rising gasoline prices and changing consumer preferences.

Stan Whittingham is a Nobel laureate and co-inventor for lithium-ion battery technology and said that the demand for electric vehicles in China and elsewhere “is rising faster than people think — faster than there are materials.”

Chris Burns (chief executive at Novonix), a Halifax-based supplier of battery materials, stated that buyers have been motivated by concerns about the environment as well as the climate to opt for EVs instead of fossil fuels.

“Many younger people entering the market are making buying decisions beyond simple economics and are saying they will only drive an EV because they are better for the planet,” Burns says. “They are making the plunge even though it would be cheaper” to drive a gas-powered car.

“I don’t think we will stop seeing reports trying to show a trend in battery prices down towards $60 or $80 a kilowatt-hour as aspirational targets, but it is possible that those may never get met,” he said. “However, it doesn’t mean that EV adoption will not rise.”