(Reuters) - Dampening demand for electric vehicles (EV) has led to a 10% drop in prices of batteries used for EVs and energy storage in August, with a further fall expected through the year, market research firm TrendForce said on Thursday.
A slide in prices of EV batteries could help the industry cushion profits from a price war started by Tesla in January to stoke demand.
Prices for battery materials hit record highs during the pandemic as lower borrowing costs buoyed EV demand, but they have been falling since.
If production of EVs continues to outpace demand, automakers may have to choose between slashing prices and profit margins, or slowing assembly lines in yet another hit to demand for batteries.
The average price drop for cells used in EV batteries reached 10%, "highlighting an uninspiring growth pattern in the EV battery market", the research firm said.
Prices for lithium iron phosphate (LFP) cells have been falling too. LFP batteries, widely used for energy storage and inexpensive EVs, were developed in the United States, but China now dominates global production.
Prices for batteries used in energy storage have also slid due to weak demand outside of China, forcing battery makers to pare back production to buoy prices.
"With a glut in China's storage cell production capacity, a price war appears unavoidable, with a continued gradual price decline expected for the rest of the year," TrendForce said.
Consumer electronics such as smartphones and laptops, which have also seen a drop in demand from pandemic highs, use lithium-ion batteries, similar to those used in EVs.
Battery cell suppliers have focused on liquidating existing inventories due to poor demand for such devices in August, TrendForce said.
(Reporting by Akash Sriram in Bengaluru; Editing by Devika Syamnath)