One of the biggest barriers to mass adoption of electric cars is the cost of ownership. Today, it is still higher than that of an internal combustion engine vehicle, but the price of a key component, batteries, is falling. This raises the hopes of manufacturers, who have invested most of their money in this field… and are having to deal with low demand that cannot cover this cost.
According to Goldman Sachs analysts, batteries represent between a third and a quarter of the cost of production of an electric vehicle. At the same time they predict that the average global cost for car manufacturers of batteries in 2024 will be $115 per kWH. That’s down 23% from last year… and prices are expected to fall another 20% in 2025.
Tesla CEO Elon Musk had already pointed out at the company’s shareholders’ meeting in June that the costs of lithium-ion cells used in electric vehicle batteries had fallen. “Battery cell suppliers have increased their supply and orders from other car manufacturers have decreased.” A radically different situation from the pandemic, when car manufacturers placed huge orders.
This drop in demand has affected the price of lithium. The price of this mineral, which is key to making today’s batteries, has plummeted by more than 70% in the last year. This is key, since raw materials are the main brake once production costs are reduced by technological advances. These have occurred in research, development, assembly and manufacturing. This is an attempt to catch up with China, where buying an electric car is cheaper than a gasoline car.
In the Asian country, however, interesting public policies were applied to promote these vehicles, as we analyze in this video:
Goldman Sachs analysts estimate that the balance between electric vehicles and internal combustion engine cars (not taking into account government subsidies) will be reached in the United States between 2025 and 2026. In Europe it should be similar… but one has to take into account the lag between when costs come down and when they are applied to the price of new vehicles.
For now, electric vehicles are still more expensive to buy in the United States, partly because of the tendency of American drivers to buy larger cars that require larger batteries.
There is also the need to deal with range anxiety and consumer preference for hybrids, a phenomenon that is also occurring in Europe. Lower purchase prices for cars and lower interest rates, together with effective government incentives, could be the ideal combination to stimulate demand that, at least in Spain, is not taking off.
