According to a new analysis by Goldman Sachs, several factors may be converging to reduce electric vehicle battery prices, subsequently boosting electric vehicle demand.
Analysts anticipate a nearly 40% drop in electric vehicle battery prices between 2023 and 2025, with electric vehicles reaching “revolutionary levels in terms of cost parity” with internal combustion vehicles in some markets as early as next year, without subsidies. According to the analysis, this is attributed to lower material costs and the current stagnation in electric vehicle sales, allowing supply to catch up with demand.
Goldman has revised its forecast for global battery demand growth in 2024 to 29% year-on-year, down from a previous projection of 35%. The firm estimates that battery demand increased by 31% in 2023.
This is putting less pressure on the battery materials market, cooling demand for metals such as nickel and lithium (as noted in another analysis) and helping to lower battery prices, which, according to Goldman, can constitute one-third of an electric vehicle’s cost. The analysis suggests that battery innovation, whether through new solid-state chemistries or improved manufacturing processes, could also contribute to cost reduction.
Electric vehicle battery prices surged in 2022 and then began to decline again last year as material costs fluctuated. However, the Department of Energy has pointed out that even when battery costs rose in 2022, adjusted for inflation, they were part of a long-term downward trend.
Goldman Sachs predicts that battery prices will continue to fall significantly until 2025 and more or less stabilize thereafter. This could enable electric vehicles to capture larger market shares more rapidly. Goldman analysts now forecast electric vehicles to achieve a 50% market share in the United States by 2030 and 68% in the European Union for the same year.
This aligns closely with recent predictions from the International Council on Clean Transportation (ICCT). In an analysis published last month, the ICCT argued that an increase in lithium supply could make electric vehicles cheaper than gasoline cars in a few years. However, large batteries in trucks and SUVs are among the few factors that could slow down this trend.
