EVs March Toward Affordability
Even as electric cars become more commonplace on our roads, there are plenty of segments, and plenty of potential buyers, that continue to be underserved by electric options. The sheer cost of EV batteries means that huge vehicle segments like compact, sub-$30,000 cars and SUVs don’t have many good electric choices yet. But according to a new report from investment firm Goldman Sachs, that might be about to change.
EV Battery Prices Dropping Rapidly
Goldman has been tracking the price of EV batteries for several years now, and with the exception of a blip in 2022, the cost per kilowatt-hour (kWh) for EV batteries has come down continuously. Indeed, global average battery prices declined from $153 per kWh in 2022 to $149 in 2023 – and Goldman predicts that they will fall to $111 per kWh by the end of 2024.
Looking ahead, researchers at the firm suggest that battery prices could be as low as $80 per kWh as early as 2026 – making EV battery capacity just over half the price it would have cost in 2023. At $80 per kWh, says Goldman, battery-electric vehicles would achieve ownership cost parity with gasoline vehicles in the U.S., even before financial incentives are factored in.
EV Battery Energy Density
Why are battery prices dropping so much? Goldman says that technology advances have allowed EV battery manufacturers to increase energy density faster than expected. Modern EV batteries have about 30 percent higher energy density than batteries of just a few years ago – at a substantially lower cost.
Innovation in the structure of EV batteries is helping to drive this increase in energy density. Early EV batteries had lots of small battery cells packed into smaller modules, which would then be combined into a big battery pack. Now, larger cells or pouches are being used, eliminating the modules and the walls between them, using up more of the space inside a a battery pack, while also simplifying the structure and lowering the cost.
Battery Materials Getting Cheaper
There has also been a drop in the price of the materials used in EV batteries, including lithium and cobalt. Metals consist of roughly 60 percent of the cost of an EV battery. And from 2023 to 2030, Goldman estimates that 40 percent of the decline in the price of battery capacity will come directly from lower commodity costs.
Nickel-based EV batteries, as well as lithium-iron-phosphate (LFP) batteries, will both benefit from lower commodity prices. Lower-cost LFP batteries, which are currently used in about 40 percent of EV batteries, should become even more affordable in the future.
What Other EV Battery Technologies Exist?
There are, of course, other battery technologies on the horizon. Sodium-ion batteries don’t use lithium at all – but are currently only being made in very small quantities, and their performance in extreme temperatures has yet to be proven. Solid-state batteries, which have been touted as a game-changer with much more energy density as well as increased safety, will cost much more, and are expected to capture about 10 percent of the market in the future.
Even as these new technologies come online, Goldman Sachs expects that existing lithium-based batteries will continue to get stronger and stronger, and also more efficient and more affordable. The company expects LFP batteries to increase their market share from 41 percent of the market currently to 45 percent in 2025, with advanced nickel-based batteries continuing in higher-cost, higher-performance applications.
Conclusion: Is 2026 the Year of EV Price Parity?
Lower battery costs, and increasing price parity with internal combustion engine (ICE) cars should, in theory, help vehicle manufacturers shift more EVs over the next few years, even as financial incentives may reduce over time, and even in the face of uncertainty over resale value.
That’s because lower battery costs, and therefore lower vehicle costs, will contribute to an overall lower cost of ownership for an EV compared to a gas car – especially in an environment of elevated oil prices. Indeed, Goldman estimates that EVs will achieve parity on total cost of ownership by 2026, with EVs having an advantage in future years. Lower running costs, they say, should fuel a comeback in demand for electric cars purely from an economics perspective.
Is 2026 the year when consumer-led adoption of EVs will begin? Time will tell.
