Today, electric cars cost more than ICE equivalents, but this will change in the next few years.
I just had a bit of fun pricing up a brand-new Vauxhall Corsa. The Corsa Elite Edition with a 1.2 petrol engine comes in at £19,445, while the Corsa-e Elite Premium version comes in at £29,410.
The price difference of near-enough £10,000 is enormous, driven mostly by the cost of EV batteries which account for around 20% of the cost of the vehicle.
However, battery prices are falling rapidly.
The latest forecasts predict EV battery prices will fall below $100 per kWh by 2026 (S&P Global Platts). $100 per kWh is the golden number where manufacturing an electric car becomes as cheap as manufacturing an ICE car.
“We anticipate initial EV purchase prices to continue to decline as the decade progresses. We currently forecast EV battery costs to fall below $100/kWh by 2026, making EV vehicles more broadly cost-competitive with ICE vehicles without subsidy. We believe the culmination of these factors will convince consumers that EVs are a logical purchase.”David Capati, Low Carbon Transport Analyst, Platts Analytics.
According to Statista, EV battery prices have fallen from $300 per kWh in 2016 to $132 in 2022, and from $1,200 per kWh in 2010.
This enormous drop in prices is because of economies of scale, where the average costs per unit decrease with an increase in production volume.
As more people adopt electric vehicles, the price of batteries will fall even further when we look out to 2026 and beyond.
However, in the short term, EV battery prices could increase due to rising raw material prices, as well as energy and fuel prices.
Rising raw material prices – a fly in the ointment?
Lithium, nickel and cobalt are the key metals used to make EV batteries, and all of these are experiencing extreme price rises. For example, lithium prices rose 478.3% between January 2021 and January 2022.
Rising material costs mean carmakers are faced with a tough choice – reduce margins or pass costs on and make electric cars more expensive.
The growth in demand for electric car batteries is helping to offset price increases for raw materials, but rising prices for metals like lithium will probably set back ICE price parity by a few years.
The latest forecasts predict EV battery prices will fall below $100 per kWh by 2026, with prices falling to a point where EVs have price parity with ICE vehicles.
“Lithium and cobalt prices will peak in 2022 before sufficient supply comes online, coupled with operational relief sufficient to meet demand resulting in a price fall and stabilization. Furthermore, the need for lithium and other key battery metals could be lessened as battery efficiencies increase, chemistries change, and battery cell recycling practices improve.”David Capati, Low Carbon Transport Analyst, Platts Analytics.
In the long-term, not even rising prices in commodities and raw materials are enough to stop the fall in battery prices entirely, which are inevitable.
They may stem falling prices, but they won’t stop them entirely.
While raw materials are increasing in price, and some manufacturers are hoarding raw materials (further squeezing the supply chain), increasing manufacturing output means that EV battery prices are expected to hold the line over the next year, especially with larger battery manufacturers like Philips.
The supply chain is undoubtedly pinched, but it is moving, with prices expected to peak in 2022 before sliding back down.
Brace yourself for media scare stories
Over the next year, you are likely to read lots of stories about the exploding prices of raw materials and how electric cars are going to get a lot more expensive.
Expand your horizon to 2026. Analysts see electric car batteries dipping below $100 per kWh, giving EVs price parity with ICE vehicles.
In the short term, EV prices will only increase with manufacturers that choose to pass on rising costs, and not all of them will do this. Another option manufacturers have is to cut costs in other areas and take a small hit on margins.