Falling battery prices could result in the global electric vehicle market reaching cost parity, without subsidies, with internal combustion engine vehicles around the middle of the decade, according to Goldman Sachs Research.
Goldman analysts now expect battery prices to fall to $99 per kilowatt hour of storage capacity by 2025, a 40 percent decrease from 2022. The previous forecast was for a 33 percent decline. The researchers also forecast that battery pack prices would fall by an average of 11 percent per year from 2023 to 2030.
Almost half of the decline is expected to come from declining prices raw materials that are used to make electric vehicle batteries, such as lithium, nickel, and cobalt, according to the Goldman research.
“The reduction in battery costs could lead to more competitive EV pricing, more extensive consumer adoption, and further growth in the total addressable markets for EVs and batteries,” Nikhil Bhandari, co-head of Goldman Sachs Research’s Asia-Pacific Natural Resources and Clean Energy Research, wrote in the team’s report.
Initially the global electric vehicle market was driven by regulatory support, but global EV penetration is starting to retreat from recent highs, “a potential driver of which could be governments in Europe and China cutting back on subsidies,” the report said.
The Goldman analysts said they see the electric vehicle market transitioning to “a new phase that is more heavily influenced by consumer adoption than government largesse as battery prices drop.”
Goldman’s base case estimate for global electric vehicle penetration jumps to 17 percent in 2025, from 2 percent in 2020, and to 35 percent and 63 percent by 2030 and 2040, respectively, and Goldman’s “hyper adoption” scenario sees electric vehicles accounting for 21 percent of total global vehicle sales by 2025, 47 percent by 2030, and 86 percent by 2040.
Right now, the Goldman analysts said, “China is leading the way.” Electric vehicles in China are more competitively priced against internal combustion engines in its local market relative to Europe and the United States, the report said, noting that electric vehicle sales in China are subsidized by Chinese electric vehicle producers, which are selling electric vehicles at a loss.
The Goldman analysts expect that to change around the middle of the decade, as battery prices fall and electric vehicle sales rise, leading to “a significant reduction in EV costs.” The researchers also noted that Chinese consumers have a wider range of electric vehicles to choose from while electric vehicle manufacturers in the US and Europe have focused on larger and more luxurious models. “We believe the EV market in China could be the closest to a consumer-led EV adoption phase,” Bhandari said.