Volvo, the Swedish car manufacturer, increased sales of electric and hybrid vehicles as a share of overall sales to 31%. Battery EV profit margins improved from 13% in Q1 to 15% in Q2. 

In their Q2 earnings announcement, Volvo broke new ground by revealing the comparative profit margins for its battery EV fleet (15%) and its internal combustion engine (ICE) fleet (22%). With pure battery electric vehicles selling at a 12% price premium to ICE vehicles, the numbers suggest that costs for battery EVs are around 22% higher than for ICE vehicles. 

As a backdrop, and with fuel prices continuing to rise to new highs, ICE vehicle sales are falling at a greater rate than new EV sales are increasing across Europe and beyond. High raw material costs, for lithium-ion batteries in particular, will continue to squeeze margins for global car manufacturers as they transition towards EVs. While scale returns will ultimately drive up EV margins in the longer-term, short-term profitability will be constrained by the move away from ICE production and limited growth prospects in overall car volume sales in 2022. 

Project Blue’s Critical Materials Price Index shows that a basket of battery materials has doubled in price over the last 12 months. A recent strengthening of the dollar, along with concerns over the macroeconomic outlook, has seen some fall back in metals prices such as copper, nickel and cobalt. However, the market balance for essential battery materials such as lithium and graphite means that overall EV battery costs are likely to remain higher for longer than previously anticipated.