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Down and to the right: That’s where EV battery prices are headed, per a new research note from Goldman Sachs.
Analysts project that the price of batteries—which make up about one-third of the cost of an EV—will plummet almost 40% between 2023 and 2025, thanks to falling critical minerals prices and advancements in battery technology. The upshot is that lower battery prices—and therefore lower price tags on EVs—could help spur demand for plug-in cars.
“If EVs have to match ICE cars on price, the batteries need to be cheaper,” Goldman analysts wrote in another February note.
The projections are welcome news for automakers, many of which have pulled back on EV investments in recent months as demand has slowed amid price and range concerns. Goldman analysts noted that by next year, some EV models may reach price parity with combustion engine vehicles.
“The good news is battery prices are now falling rapidly,” Nikhil Bhandari, co-head of Goldman Sachs’ Asia-Pacific Natural Resources and Clean Energy Research, wrote.
Goldman Sachs Research revised downward its forecast for global battery demand this year, from 35% YoY growth to 29%. (Though demand grew 31% in 2023.)
One of the factors driving EV battery prices lower is that in 2020, as investments in electrification picked up steam, the market for metals like lithium, cobalt, and nickel became “overwhelmed,” according to Bhandari, pushing up prices. But automakers and their suppliers didn’t quite get their demand projections right, leading to an oversupply of metals—bringing us to where we are today.
Other researchers have analyzed falling raw materials prices. A BloombergNEF report from November found that the price of lithium-ion battery packs had dropped 14% YoY to a record low of $139 per kilowatt hour after 2022’s “unprecedented price increases.”
The world’s largest battery maker, CATL, recently moved to halve the price of its lithium iron phosphate battery (LFP) cells this year. The price declines have prompted some producers of materials like nickel and lithium to pull back on planned investments in mining.
Another factor is that, with advancements in technologies like solid-state and LFP, batteries are getting better.
“For EVs to have a broad-based, economic-driven adoption, we need further step-ups,” Bhandari wrote. “In particular, battery structure-related innovations, as well as commercialization of next-generation technology including solid-state batteries.”
Goldman analysts remain bullish on EVs’ prospects: They expect electric models to make up 50% of car sales in the US and 68% in Europe by 2030.