Recently, there has been a lot of news that the price of electric vehicles will fall further, and it also indicates that the end of the gasoline car era is nearer. As the core cost component of electric vehicles, the price of batteries has dropped sharply and has become a key factor in promoting the popularization of electric vehicles. According to the latest report released by BloombergNEF, battery prices are expected to fall below $100 per kilowatt-hour by 2026, when the cost of electric vehicles and traditional fuel vehicles will tend to be the same, achieving "the same price of gasoline and electricity". This means that electric vehicles are no longer a high-cost alternative, but a mainstream option to compete with gasoline vehicles. In this article, China Exportsemi will analyze the reasons for the collapse of battery prices from multiple perspectives such as the progress of battery technology, market supply and demand, and policy support, and discuss the far-reaching impact of this trend on the electric vehicle industry and the global automotive market.
Background to the decline in battery prices
In recent years, global battery prices have continued to fall, which has become an important factor driving the adoption of electric vehicles. According to BloombergNEF, the average price of power batteries worldwide has fallen to $115/kWh in 2024, down 20% from last year. Behind this downward trend is the continuous progress of battery production technology and the significant effect of economies of scale. The price of power batteries has shrunk by nearly ninety percent over the past decade, and this trend is expected to continue in the future. For example, the world's leading battery manufacturers, such as CATL and BYD, continue to drive battery costs down with their own R&D and large-scale production.
Between 2020 and 2023, the scale of global power battery production has increased significantly, especially in China, where market competition has become increasingly fierce, which provides conditions for a further decline in battery costs. At the same time, the supply chain of battery raw materials has also been gradually optimized, and although the price fluctuations of key metals such as lithium, cobalt, and nickel have been affected, the overall cost trend is still downward.
The path to achieve the same price of oil and electricity
1. Technological progress and economies of scale
Continued innovation in battery technology is the main driver of battery price decline. With the continuous breakthrough of new technologies such as solid-state battery technology and sodium-ion batteries, the energy density of batteries will be further improved in the future, and the cost is expected to be further reduced. For example, lithium iron phosphate (LFP) batteries with high energy density have become a mainstream technology in the electric vehicle market due to their abundant raw materials and low cost. At the same time, as production scales up, battery manufacturers continue to improve production efficiency and further reduce costs. The average global price of EV batteries is expected to fall to $80/kWh by 2026, down nearly 50% from 2023.
2. Market supply and demand
The oversupply of batteries is another key factor in the continued decline in battery prices. There is a dilemma in the production and marketing relationship of the electric vehicle market. The production of batteries depends on the growth of electric vehicle sales, and the oversupply of batteries can cause manufacturers to reduce production, driving prices down further. China's power battery market is a typical example. In 2023, the price of power battery cells in China will drop sharply, especially the price of lithium iron phosphate batteries, from 0.82 yuan/Wh in January 2023 to 0.43 yuan/Wh in December, a decrease of more than 47%.
Figure: Battery prices plummeted by 80%: The era of "gasoline and electricity at the same price" for electric vehicles will come in 2026
3. Policy support and government intervention
Government policies play a crucial role in promoting the "same price of oil and electricity" for electric vehicles. In China, for example, the government has promoted the adoption of electric vehicles by providing subsidies for car purchases, tax breaks, and large-scale infrastructure development. In the European and American markets, government subsidies for electric vehicles are also an important factor in promoting the growth of electric vehicle sales. However, in recent years, the subsidy policies of some countries have gradually declined, especially in some European countries to reduce subsidies for electric vehicles, which may lead to a short-term decline in electric vehicle sales, which in turn will affect the arrival of the era of "the same price of oil and electricity".
Industry Impacts and Challenges
1. Improvement of market competitiveness
As the price of batteries falls, the price-performance ratio of electric vehicles will increase significantly, which will further enhance their market competitiveness. Goldman Sachs' research report predicts that battery pack prices are expected to fall to $64/kWh in 2030, and some institutions even predict that prices will fall to $45/kWh. At that time, electric vehicles will no longer be a high-priced alternative, but a mainstream choice to compete with traditional fuel vehicles at parity. The popularization of electric vehicles will accelerate the elimination of traditional fuel vehicles and promote the electrification transformation of the entire automotive industry.
2. Uncertainty in the policy and market environment
While declining battery prices have provided strong support for the adoption of electric vehicles, uncertainty in the policy environment remains a challenge. In the United States, for example, the Trump administration introduced a tax credit for electric vehicles, but the uncertainty about the future of this policy poses a challenge to the development of the electric vehicle market in the United States. In addition, changes in international trade and geopolitics may affect the supply chain of battery raw materials, which may have an impact on battery prices.
3. Adjustment and challenges of production and marketing relations
The production and sales relationship in the electric vehicle market needs to be adjusted according to changes in battery supply and vehicle sales. In the past few years, the oversupply of power batteries has triggered production cuts by some manufacturers. In the future, as EV sales increase, manufacturers will need to adjust production schedules based on market demand to avoid oversupply. Otherwise, battery manufacturers risk overstocking inventories and falling prices.
Examples of specific data
Next, let's look at some specific data and examples:
1. Downward trend in battery prices
According to a Goldman Sachs research report, the global price of EV power batteries has dropped from $153 per kWh in 2022 to $111 at the end of 2023 and is expected to fall further to $80/kWh by 2026. This trend will directly affect the price of electric vehicles, helping to achieve the goal of "equal price of gasoline and electricity".
2. Composition of battery cost
The core cost of batteries includes metals such as lithium, cobalt, and nickel, accounting for nearly 60% of the cost of batteries. As the price of these metals has fallen, and the overall cost of batteries has been declining, as well as advances in battery technology. In addition, the decline in commodity costs has also supported further reductions in battery prices.
3. Imbalance between supply and demand in the market
According to the data of China's power battery market, from 2018 to 2022, the proportion of China's power battery installed capacity in production remained below 80%, and showed a downward trend. In 2022, China's power battery production will be 545.9GWh, while the installed capacity will only be 294.6GWh, accounting for only 54%. This market supply-demand imbalance requires balancing supply and demand by adjusting production schedules.
Conclusion
The advent of the era of "the same price of oil and electricity" for electric vehicles will have a profound impact on the global automotive industry. The continued decline in battery prices is a key driver of this process, but market supply and demand, policy support, and changes in the global economic environment will also have an impact on this trend. Industry players need to keep an eye on these changes and be prepared for future challenges.
Overall, the declining cost of batteries has made electric vehicles a more economical and viable option, driving the electrification transition of the global automotive industry. With the continuous advancement of technological innovation and the expansion of production scale, electric vehicles will usher in a wider range of popularity in the next few years, and the dream of "the same price of oil and electricity" is gradually becoming a reality.
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