In a recent report from Goldman Sachs Research, the global electric vehicle (EV) market is on the brink of a significant transformation, driven by rapidly falling battery prices. According to Nikhil Bhandari, co-head of Goldman Sachs Research’s Asia-Pacific Natural Resources and Clean Energy Research, two key factors are accelerating the decline in EV battery costs: technological advancements and the falling prices of essential battery metals like lithium and cobalt.
Sharp Drop in Battery Prices
Global battery prices have already seen a decline from $153 per kilowatt-hour (kWh) in 2022 to $149 in 2023. This trend is expected to continue, with Goldman Sachs projecting battery prices to reach $111/kWh by the end of 2024 and potentially drop to $80/kWh by 2026. This marks nearly a 50% reduction from 2023 prices, creating a pivotal moment where battery electric vehicles (BEVs) could reach ownership cost parity with gasoline-powered cars in the U.S., even without subsidies.
Innovation Boosts Energy Density
The rise in energy density has played a crucial role in driving down costs. Battery makers are implementing innovations like larger battery cells and a shift to cell-to-pack designs, which eliminate modules and maximize energy storage within battery packs. These advancements allow for cost savings while boosting the energy capacity of batteries by approximately 30%.
Impact of Falling Metal Prices
Declining metal prices also contribute significantly to the cost reduction. Nearly 60% of battery production costs are tied to the prices of metals like lithium and cobalt. The high commodity prices experienced between 2020 and 2023, often referred to as “green inflation,” have since subsided, resulting in a reduction in battery manufacturing costs. Goldman Sachs estimates that over 40% of the expected cost decline through 2030 will stem from lower commodity prices.
Dominant Battery Technologies and Future Trends
Currently, lithium-based batteries dominate the market. Nickel-based batteries account for roughly 60% of the market share, while lithium ferrophosphate (LFP) batteries, an iron-based alternative, make up 35-40%. Although new technologies like sodium-ion and solid-state batteries are emerging, they have yet to scale. Solid-state batteries, initially expected to be market-ready by now, have faced delays and are unlikely to gain significant market share until the latter part of the decade.
In the meantime, established lithium-based batteries are expected to solidify their position. LFP batteries, in particular, are projected to increase their market share to 45% by 2025, while advanced nickel batteries will continue to dominate in high-energy applications.
Challenges for New Entrants
The battery industry presents high barriers to entry, with established players like CATL, LG Chem, and Panasonic controlling 80% of the market. New entrants face long lead times between research and development (R&D) and mass production, as well as challenges in achieving manufacturing efficiency. Additionally, skilled labor shortages and intense competition from incumbents further complicate market entry for new players.
Consumer-Led EV Adoption by 2026
While current EV demand remains reliant on government regulations, Goldman Sachs predicts a significant consumer-led adoption phase beginning in 2026. This will coincide with the anticipated drop in battery prices and the achievement of cost parity with internal combustion engine (ICE) vehicles. As battery prices continue to fall and oil prices remain relatively high, consumers are expected to embrace EVs purely for economic reasons, marking a pivotal shift in global EV adoption.
By 2026, the combination of technological advancements, lower costs, and favorable market conditions will likely spark a resurgence in demand for electric vehicles, making EV ownership more accessible to consumers worldwide.
