Plunging battery prices will deliver cost parity for EVs by 2025

As prices cool for battery metals, EVs will become competitive with traditional cars faster.

Electric vehicle (EV) battery prices are forecast to fall by 40 per cent by 2025, according to global financial giant Goldman Sachs, and will help deliver overall cost parity for electric vehicles by that date.

The latest forecasts by Goldman Sachs predicts an abrupt end to the recent “greenflation” for batteries used in electric vehicles, that stemmed from rising demand and component shortages.

Goldman Sachs now expects battery prices to fall to $US99 per kilowatt-hour (kWh) of storage capacity by 2025 – a 40% decrease from 2022. Previous forecasts had predicted only a 33% decline over the same period, highlighting the rapid shifts in the industry in just the last few months.

Battery prices are forecast to fall 40% by 2025 (from 2022)
Global Average battery pack prices (Source: Company data, Wood MackEnzie, SNE Research, BNEF. Goldman Sachs research data from 2023 are forecasts.

Almost half of this 40% decline will come from declining prices in EV raw materials such as lithium, nickel, and cobalt, and this will in turn lead to battery pack prices falling by an average of 11% per year through the end of the decade.

Most important then is Goldman Sachs’ conclusion that electric vehicles could reach cost parity, without subsidies, with ICE (internal combustion engine) vehicles around 2025 on a total-cost-of-ownership basis.

Lower battery prices could mean EV cost parity with ICE vehicles by mid-decade
EV cost premium payback period versus ICE in years (Source: company data, Goldman Sachs research. Data from 2023 are estimates.)

“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,” said Nikhil Bhandari, co-head of Goldman Sachs Research’s Asia-Pacific Natural Resources and Clean Energy Research.

Goldman Sachs’ analysis further predicts that the electric vehicle market will begin transitioning away from reliance on government subsidies – which have begun diminishing, leading to a retreat in global EV penetration – towards widespread consumer adoption.

In fact, despite a recent retreat, Goldman Sachs predicts global EV penetration will jump to 17% in 2025, up from only 2% in 2020, before ramping up to 35% by 2030 and 63% by 2040.

Global EV penetration has retreated from the highs in late 2022
Regional monthly battery-electric vehicle penetration (Source: CPCA, Autodata, SMMT, KBA, PFV/InsideEVs, CCFA, UNRAE, EU-vs, Wood Mackenzie. Data compiled by Goldman Sachs research)

Finally, Goldman Sachs finds that China continues to lead the way and “could be the closest to a consumer-led EV adoption phase,” according to Bhandari.

This is helped by the fact that many Chinese EV manufacturers are selling EVs at a loss, but also by the fact that Chinese consumers have access to a greater array of EV models. In comparison, EVs available in America and Europe are primarily in the larger and more luxurious categories.

This article was first published on The Driven. You can read it here.

Joshua Hill
April 21, 2024
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