Electric vehicle (EV) battery prices are expected to drop by nearly 50% in the next two years and will reach cost parity with internal combustion engine (ICE)-based cars in the U.S., according to Goldman Sachs Research.
Falling prices are due to technology advances that are increasing energy density combined with a drop in green metal prices, Goldman Sachs said. This could potentially lead to overall cost savings for consumers and leading to higher levels of adoption of these vehicles.
The prices
Battery prices dropped to $149 kilowatt-hour in 2023, down from $153 kWh in 2022. Prices are forecast to fall even further by the end of this year to $111. Continued technology improvements will lead to average battery prices falling to $80 kWh by 2026.
This will amount to a 50% drop from 2023 and reaching a level at which battery EVs would achieve ownership cost parity with gasoline-fueled cars in the U.S., Goldman Sachs said.
Two main drivers
One of the main reasons for a drop in prices is multiple new battery products have been launched recently that feature about 30% higher energy density and lower costs. Part of these improvements include eliminating cell modules and moving to a cell-to-pack battery that helps to save space inside but also cutting costs with a simplified infrastructure. This also increases battery energy simultaneously.
The second biggest driver is the downturn in battery metal prices — including lithium and cobalt. Metals are about 60% of the cost of batteries, Goldman Sachs said. About 40% of the decline is coming from lower commodity costs, which is expected to continue through 2030.
While EV infrastructure remains a challenge for consumers, prices are also one of the major hindrances to EV adoption. If prices drop, it could accelerate the automotive transition to electrification. Source: EVgo
Consumer adoption
Given the cost of ownership parity will start to arrive in 2026 combined with high oil prices and falling battery prices, Goldman Sachs Research expects a strong comeback in demand for EVs starting in 2026 purely from an economics perspective.
This will result in a consumer-led adoption phase beginning in and following the next few years.
What’s next?
Solid-state batteries. These will increase the energy density in EV batteries substantially as well as make these batteries safer without flammable liquid electrolyte inside. While these batteries have been in development for years, they have been pushed out to the later part of the decade due to the inability to move from lab scale to mass production, Goldman Sachs said.
Lithium-based batteries will continue to grow stronger in the meantime, which may hinder the adoption of solid-state batteries along with nickel batteries continuing to dominate the higher energy sectors.
