The two major technologies of batteries used in electric vehicles are Li-ion and Lead Acid, out of that, Li-ion batteries are more expensive to manufacture. In fact, the total product cost of this battery is around 40 percent higher than the nickel-metal hydride battery. The battery needs an onboard computer circuitry to manage and ensure that voltage and current are well within the safe limits. This circuitry makes it more expensive.
Lead-acid batteries are more economical batteries available on the market, both on their initial cost as well as cost per kWh.
As Li-ion batteries are becoming more prevalent for a range of electric vehicles and as it is the more expensive of the alternatives, it is instructive to see how the Li-ion battery costs are likely to trend in future.
The chart above shows how the Li-ion battery costs & prices have trended. Starting with a cost of about $1000/kWh in 2010, the costs have dropped to just over $200/kWh in 2018 – an exceptional drop of 80% in just 8 years.
How did such a dramatic drop happen? Was there any major breakthrough in technology? Nopes. The main reason for the cost decrease simply has been the economies of scale. From practically no electric vehicles on the road (except for the occasional Toyota Prius, even which was a hybrid electric vehicle), in 2018 alone, 2 million electric cars were sold worldwide (Top 3 sales were by Tesla Model 3, BAIC EC Series & Nissan Leaf). In 2017, sales were 1 million. That is, there was a 100% increase in electric car sales 2017 to 2018. By end of 2018, the world had a cumulative 5 million electric cars on road – still a very small percentage compared to the total of about 1 billion cars (1000 million cars) on road, but much higher than what they were earlier.
So, Li-ion battery prices came crashing down owing to the much larger volumes of batteries produced. If this were the case, what does it portend for the future, when electric vehicle sales are expected to be at much higher levels?
Let’s look at what the electric car numbers for the future look like. An EU report predicts that there will be at least 50 million electric cars on roads by 2028, and this could rise to an astonishing 900 million electric cars on the road by 2040, by when a total of about 2 billion cars are expected on the roads – so electric cars could be about 50% of total cars on roads by 2040, from an insignificantly small percentage (0.5%, if you wish to know the exact number!) by end of 2018.
So, how would this growth in electric vehicle translate to cost decreases for the Li-ion battery?
Moving forward, the cost is expected to drop to sub-$200 in 2019 and continue decreasing. The magic number of $100/kWh is expected to be reached around 2025-2026.
Why is the $100/kWh a significant milestone? The chart below tells why.
The chart above shows the prices of Electric Vehicles and the comparative prices of ICE vehicles. As one can see, in 2018, the costs of EVs are on average about 25-30% higher than ICE vehicles. This gap continues closing owing mainly due to the decreasing costs of batteries and by 2026, when the battery costs touch about $100/kWh, the cost parity between battery vehicles and ICE vehicles is achieved. Beyond this year, electric vehicles are likely to cost less than ICE vehicles!
But the above is just one estimate. An EU report is a bit less optimistic, and predicts a 50% drop in battery prices by 2030 – so, if we were to go with this estimate, we should expect a sub-$100/kWh closer to 2030.
Cost parity is a critical aspect for any commercialization efforts, as it signals the taking over of market forces in the growth of a product. With lower costs than ICE vehicles and better performance, one can thus expect the electric vehicles sales to grow much faster starting 2025/2026.
Post this blog’s original publishing date, there have been a number of updates on the battery cost trends. Here are links to some of them:
- A behind-the-scenes take on Li-ion battery prices – from Bloomberg New Energy Finance (BNEF) – a detailed analytical report, Mar 2019 – Link to report
- Battery reality – There’s nothing better than Li-ion coming soon – Apr 2019 – Link to report
- How we get to the next battery breakthrough – Quartz – Link to report
- Risk of slower-than-expected declines for Li batteries – Navigant Research – Link to report
See also the related blog posts
- World’s Leading Suppliers of Li-ion Batteries for EVs – Global Electric Vehicle Battery Vendors
- India Electric Vehicle Market Strategic Insights & Perspectives from EAI
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