It wasn’t long ago rising demand and component shortages sparked concern that “greenflation” would drive up prices for the batteries used in electric vehicles. That’s subsiding as prices cool for battery metals, which could help make EVs more competitive with traditional cars more quickly.
Goldman Sachs Research now expects battery prices to fall to $99 per kilowatt hour (kWh) of storage capacity by 2025 — a 40% decrease from 2022 (the previous forecast was for a 33% decline). Our analysts estimate that almost half of the decline will come from declining prices of EV raw materials such as lithium, nickel, and cobalt. Battery pack prices are now expected to fall by an average of 11% per year from 2023 to 2030, writes Nikhil Bhandari, co-head of Goldman Sachs Research’s Asia-Pacific Natural Resources and Clean Energy Research, in the team’s report.
As battery prices fall, Goldman Sachs Research estimates the EV market could achieve cost parity, without subsidies, with internal combustion engine (ICE) vehicles around the middle of this decade on a total-cost-of-ownership basis.
“The reduction in battery costs could lead to more competitive EV pricing, more extensive consumer adoption, and further growth in the total addressable markets for EVs and batteries,” says Bhandari.
The EV market was initially driven by regulatory support around the world, but global EV penetration is starting to retreat from recent highs, a potential driver of which could be governments in Europe and China cutting back on subsidies.
Still, our analysts see the EV market transitioning to a new phase that is more heavily influenced by consumer adoption than government largesse as battery prices drop. The team’s 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. But its “hyper adoption” scenario sees EVs accounting for 21% of total global vehicle sales by 2025, 47% by 2030, and 86% by 2040.
So far China is leading the way — 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, the Goldman Sachs Research expects this to eventually change in 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. And whereas Chinese consumers are seeing more options of competitively priced EVs, carmakers in the US and Europe have so far focused on larger and more luxurious EV models.
“We believe the EV market in China could be the closest to a consumer-led EV adoption phase,” Bhandari says.
Our analysts also credit new battery technologies for their forecast of a more rapid decline in battery prices. The report highlights a handful of EV battery innovations that could be commercialized this decade, creating “pockets of strength” along the battery value chain. These include novel anode materials featuring silicon that replace or blend with graphite and improve energy density. Bhandari also notes there are new battery structures such as those that increase the size of each battery cell (large cylindrical batteries) that help simplify the pack manufacturing process, “leading to a meaningful savings of labor and machine time.”
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