Cheaper Batteries Will Help Tesla, Other OEMs Field Affordable EVs

Consumers are letting up on the accelerator pedal on buying EVs largely for reasons of price, charging infrastructure issues and personal animus toward government mandates. Tesla, Renault and Stellantis, though, are touting solutions to the first obstacle: price.

A Reuters report this week sent reverberations through the EV market, saying Tesla founder Elon Musk, visting the company’s Berlin gigafactory, told colleagues he believes the EV maker can roll out a €25,000 ($27,000) EV as early as 2025. That model may be introduced as the Model 2.

But before Musk spoke to an unnamed source who shared the story with Reuters, French carmaker Renault already had the China-made Dacia Spring EV mini-car, touting it as the European Union’s cheapest EV with a starting price of €21,000 ($23,000). Last month, Stellantis announced the launch of its Citroen e-C3 priced at €23,300 ($25,000), plus the planned introduction of a sub-€20,000 ($21,500) model in 2025. Earlier this year, Volkswagen showed concept designs for a €25,000 ($27,000) electric car concept called ID. 2all  that the company says will launch in 2025.

Chinese labor costs help Renault. Tesla’s bullishness on selling cheaper EVs (currently, the lowest-priced vehicle Tesla sells in the EU is its Model 3, starting at €42,990 [$46,290]) is based on production advances the company is innovating.

But what is helping all these companies make promises of less expensive EVs is falling battery prices.

Goldman Sachs forecasts that EV battery prices will have fallen by 40% by 2025, compared with prices in 2022. That’s a huge cost reduction given that the battery pack is by far the most expensive piece of an EV. Producing batteries can account for up to 40% of an EV’s cost.

Battery prices in August fell 10% in just one month, according to Trendforce.

Goldman Sachs expects battery prices to fall to $99 per kilowatt hour (kWh) of storage capacity by 2025 — a 40% decrease from 2022. The level at which EVs are at cost parity with internal-combustion-engine (ICE) vehicles is about $69 per kWh. The Goldman Sachs report estimates almost half the decline will come from falling prices of battery raw materials such as lithium, nickel and cobalt. Battery pack prices are expected to fall by an average of 11% per year from 2023 to 2030, according to Nikhil Bhandari, co-head of Goldman Sachs Research’s Asia-Pacific Natural Resources and Clean Energy Research.

The drop in battery prices will be good news both for consumers and automakers trying to meet government mandates for zero-emission vehicle sales.

Analysts point to high prices and the lack of EV options in the CUV and SUV product segments for rising inventories of unsold EVs on dealer lots. The average price of an electric car in the U.S. was about $50,000 last month, just slightly above the average transaction price of ICE vehicles. But there are far fewer choices among EVs and no SUVs anywhere near the average price until next year. In October, dealers had a 97-day supply of EVs, excluding Tesla and Rivian, compared with 57 days for ICE vehicles, Cox Automotive says.

The government is doing its part to bring EV fence-sitters into the market. Besides the $7,500 federal tax credit for buying a new qualifying EV buyers will, come January, be able to use that money in their down payment instead of simply apply it to their tax returns.