“The good news is battery prices are now falling rapidly,” Bhandari says. Goldman Sachs Research expects a nearly 40% decline in battery prices between 2023 and 2025, and for EVs to reach breakthrough levels in terms of cost parity (without subsidies) with internal combustion engine cars in some markets next year.
Battery prices declined at an average annual rate of 19 percent between 2010 and 2018. BloombergNEF attributes the slowing pace of progress to slowing growth of volume in the battery industry.
There are two main drivers. One is technological innovation. We're seeing multiple new battery products that have been launched that feature about 30% higher energy density and lower cost. The second driver is a continued downturn in battery metal prices. That includes lithium and cobalt, and nearly 60% of the cost of batteries is from metals.
The growing demand for lithium, nickel and cobalt, itself the most expensive battery metal in the world, has driven soaring prices in recent years and is expected to continue to rise for the foreseeable future, increasing pressure on manufacturers’ procurement costs. Probability that battery manufacturing will lag expected growth in demand.
But now supply is catching up and cooling the market for the likes of nickel and lithium that are used in batteries, which can be one-third of the cost of an EV. In a few months, lower metal prices should start to flow through to EV makers. “The good news is battery prices are now falling rapidly,” Bhandari says.
When we talk about the battery from, let's say, 2023 to all the way to 2030, roughly over 40% of the decline is just coming from lower commodity costs, because we had a lot of green inflation during 2020 to 2023. The level of those metal prices was very high. What’s enabling battery makers to increase energy density so dramatically?