Cheaper EV batteries to make electric vehicles cheaper than gas vehicles

• Author:
• Author name

  Quantumrun Foresight
• January 14, 2022

Insight summary

The declining cost of batteries, especially those used in electric vehicles (EVs), is reshaping the automotive industry by making EVs more affordable than traditional gas-powered ones. This trend, which has seen battery prices drop by 88 percent over the past decade, is not only accelerating the adoption of EVs but also playing a crucial role in the global shift away from fossil fuels. However, this transition also brings challenges, such as potential resource scarcity due to increased demand for battery materials, the need for upgrades to existing power grids, and the environmental impact of battery disposal and recycling.

EV batteries context

The cost of batteries, particularly those used in EVs, has been decreasing at a rate that has surpassed previous predictions. As the cost of producing batteries falls, the overall expense of manufacturing EVs also decreases, making them more affordable than their traditional internal combustion engine (ICE) counterparts. If this trend continues, we could witness a significant increase in EV sales by the mid-2020s. It's worth noting that battery prices have already seen a substantial reduction of 88 percent over the past decade, and it is projected that EVs became more cost-effective than gas vehicles as early as 2022.

In 2020, the average cost of a lithium-ion battery pack, the primary power source for EVs, fell to USD $137 per kilowatt-hour (kWh). This represents a 13 percent decrease from 2019, after adjusting for inflation. The price of battery packs has plummeted by 88 percent since 2010, making the technology increasingly accessible and affordable.

The affordability and availability of large-capacity batteries could play a pivotal role in the global transition away from fossil fuels. Lithium-ion batteries, in particular, are a crucial component of this transition. Not only do they power EVs, but they also serve an important function in renewable energy systems. They can store energy generated by wind turbines and solar panels, which is essential for mitigating the intermittent nature of these renewable energy sources. 

Disruptive impact

Until recently, batteries were simply too expensive to manufacture for EVs to make financial sense without mandates and subsidies. With battery pack prices estimated to fall below USD $100 per kWh by 2024, it will cause battery electric vehicles (BEVs) to be competitive with conventional, unsubsidized ICE vehicles. Since EVs are cheap to charge and will likely require less maintenance than conventional vehicles, they will become an increasingly attractive option for consumers over the coming decade.

Electric vehicles are already superior to gasoline cars in many ways: They have much lower maintenance costs, faster acceleration, no tailpipe emissions, and a much lower fuel cost per mile. Another trend that could become increasingly important in the next few years is the integration of battery cells directly into vehicles. The price of bare cells is about 30 percent lower than the price of a pack with the same cells inside.

The lowest industry prices can be seen in China, which was responsible for three-quarters of the world’s battery manufacturing capacity in 2020. For the first time, some Chinese companies reported battery pack prices below USD $100 per kWh. The lowest prices were for the large battery packs used in Chinese electric buses and commercial trucks. The average price for batteries in these Chinese vehicles was USD $105 per kWh, compared to USD $329 for electric buses and commercial vehicles in the rest of the world.

Implications of cheaper EV batteries 

Wider implications of cheaper EV batteries may include:

• A viable alternative to purpose-built storage systems to scale solar power. 
• Stationary energy-storage applications; for example, to reserve energy for a power utility provider.
• A broader adoption of EVs resulting in a significant reduction in greenhouse gas emissions and contributing to the global efforts to combat climate change.
• The growth of renewable energy sources as the demand for clean electricity to power these vehicles increases.
• New jobs in battery manufacturing and charging infrastructure development.
• A decrease in oil consumption reducing the geopolitical tensions and conflicts associated with oil-rich regions.
• Pressure on the supply of lithium, cobalt, and other minerals used in battery production leading to potential resource scarcity and new geopolitical issues.
• Strained existing power grids requiring upgrades and expansions energy infrastructure.
• The disposal and recycling of used EV batteries posing environmental challenges, requiring effective waste management strategies and regulations to ensure safe and sustainable practices.

Questions to consider

• What recycling options are there for electric car batteries when they reach their end of life?
• What type of batteries will power the future? What do you think is the best lithium alternative?