A recent report from Goldman Sachs Research has revealed that electric vehicle battery costs are falling much faster than experts initially anticipated. EV batteries will play a key role in transitioning the transportation sector from fossil fuels to clean energy, but scarce raw materials coupled with surging demand have significantly increased EV battery production costs.
This has resulted in battery and EV makers passing on extra costs to customers and charging premium prices for their products. As many countries worldwide accelerate their green-energy transition plans, most pundits anticipated demand for EV batteries would far surpass the supply and cause EV batteries to become even more expensive to produce. However, data shows that EV battery-production costs are dropping quicker than initially expected.
Goldman Sachs Research currently predicts EV battery prices to drop to $99/kWh by 2025, which would be a 40% drop from 2022 compared to the 33% decrease that Goldman Sachs analysts initially predicted. The analysts now say that close to 50% of the drop in EV battery prices will be due to the availability of cheaper electric vehicle raw materials such as cobalt, lithium and nickel.
Goldman Sachs Research’s Asia-Pacific Natural Resources and Clean Energy Research cohead Nikhil Bhandari predicts that prices of EV battery packs will drop by approximately 11% annually between 2023 and 2030. Goldman Sachs estimates that the reduction in EV battery prices could make EVs affordable enough for average consumers to purchase without subsidies and tax incentives.
With high prices acting as the largest barrier to electric vehicle adoption in most major markets, achieving cost parity, especially without subsidies, will be key to promoting mass EV adoption. The EV battery is key to an electric car’s functionality and accounts for up to 40% to 50% of a typical EV’s production costs. Advancements in battery technology have allowed battery makers to cut down costs significantly and may be the key to electric cars finally achieving cost parity with internal combustion engine (ICE) vehicles.
EV sales in markets such as Europe and China recently dipped, thanks to a combination of high prices, surging interest rates and increasingly high living costs. The initial adopter market is essentially tapped out, and automakers now have to appeal to the average consumer. Cheaper EV production costs would allow for more competitive electric vehicle pricing, boost healthy competition in the nascent EV sector, and provide consumers with a variety of affordable electric car brands to choose from, ultimately resulting in higher EV adoption rates.
Entities such as QuantumScape Corp. (NYSE: QS) are working to develop alternative battery chemistries, which are not only more affordable but also perform better in terms of range improvement and lowering the risk of fire outbreaks. These efforts could accelerate EV adoption worldwide.
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