The electric vehicle (EV) market is undergoing a major transformation, as battery prices are falling faster than expected. This trend is making EVs more attractive to consumers and more viable as an alternative to traditional cars. According to Goldman Sachs Research, battery prices are expected to drop by 40% from 2022 to 2025, reaching $99 per kilowatt hour (kWh) of storage capacity. This is a significant improvement from the previous forecast, which predicted a 33% decline.
One of the main factors behind the decline in battery prices is the falling prices of EV raw materials such as lithium, nickel, and cobalt. These materials account for a large portion of the cost of batteries. As their prices decrease, so does the overall cost of the battery. Battery pack prices are now projected to fall by an average of 11% per year from 2023 to 2030.
The lower battery prices have a positive impact on the EV market, as they could lead to cost parity, without subsidies, with internal combustion engine (ICE) vehicles around the middle of this decade on a total-cost-of-ownership basis. This means that owning and operating an EV would be cheaper than a conventional car in the long run. This could result in more competitive EV pricing, more widespread consumer adoption, and further growth in the total addressable markets for EVs and batteries.
The EV market was initially driven by regulatory support around the world, but global EV penetration is starting to retreat from recent highs. This could be due to governments in Europe and China cutting back on subsidies. However, as battery prices drop, the EV market is transitioning to a new phase that is more influenced by consumer demand than government incentives.
The base case estimate for global EV penetration jumps to 17% in 2025 from just 2% in 2020, and to 35% and 63% by 2030 and 2040, respectively. The “hyper adoption” scenario sees EVs accounting for 21% of total global vehicle sales by 2025, 47% by 2030, and 86% by 2040.
China is leading the way in this transition. Its EVs are more competitively priced against ICEs in its local market relative to Europe and the US. While EV sales there have been subsidized by Chinese EV producers, which are selling EVs at a loss, this is expected to change around the middle of the decade, when battery price declines and a scale-up in EV sales volumes lead to a significant reduction in EV costs.
New battery technologies are also contributing to the forecast of a faster decline in battery prices. A handful of EV battery innovations could be commercialized this decade, creating “pockets of strength” along the battery value chain.
In conclusion, the rapid decline in battery prices is a game-changer for the EV market. It is making EVs more affordable and competitive, driving consumer adoption, and expanding the total addressable market. With new battery technologies on the horizon, the future of the EV market looks promising.
Electric vehicle battery prices are falling faster than expected
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Battery prices have fallen 88 percent over the last decade