Plummeting battery prices

Goldman Sachs recently reported that by 2026, battery prices should reach $80/kWh, which is roughly 50% the 2023 price.

Let that sink in for a moment: the cost has dropped by almost half in 3 years. 

This is great news for EV affordability, as well as many other energy and technology projects that rely on lithium ion batteries. With battery prices this low, parity between new EVs and new gas cars will happen as soon as 2026.

But, there is something even more exciting on the horizon as battery prices drop.

Not just new EVs

While price parity between new EVs and new gas cars is important, the real excitement has to do with used EVs and battery replacements. As a reminder, most Americans do not buy new cars. Be it gas or EV, the MSRP is more than they want to pay. This leaves around 75% of us shopping for pre-owned vehicles. The biggest concern shoppers have with used EVs remains the battery health, and the fear of a pricey (if unlikely) battery replacement. 

And here’s where it gets cool: as battery prices drop, replacement batteries get really affordable. Soon enough, it will be cheaper to replace a battery pack than it would be to replace a combustion engine. 

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And, unlike gas cars whose hundreds of moving parts often cause mechanical problems as they age, EVs have far fewer moving parts to wear down. 

As a reminder, battery replacements are exceedingly rare, and are generally covered by special battery warranties that last or exceed 8 years/100,000 miles. The lifespan of a lithium ion battery is expected to be 200,000 miles or more.

How Low Can it Go?

Goldman Sachs’ October 2024 report puts the estimated pack price in 2030 at $64/kWh. Compared to other estimates, this number is high. In January 2024, industry leader RMI estimated a 2030 cell price of $32–$54/kWh, or $45-$65/kWh for the pack. However, over the course of 2024, CATL began offering LFP cells as low as $56/kWh and BYD followed. This summer, Clean Energy Associate predicted that the global market for lithium-ion batteries will remain oversupplied through 2028, meaning even lower than anticipated prices. 

Industry insider and author of the RMI report, Daan Walter, says that $35/kWh seems like an achievable, if optimistic projection for cell prices in 2030. This puts pack prices at or under $50/kWh. For a huge, 100 kWh pack, replacement costs might be $4500-$5000, or $3,375 for a more standard 75 kWh pack. That’s on par with an engine replacement!

Moreover, in 2030, savvy consumers should be able to offset the cost of a replacement pack by reselling their battery in an increasingly competitive second life market. Today, in the rare case that an EV driver needs to get a battery replaced, the service shop generally keeps the old battery pack. They will either refurbish it to resell, or sell it to a company that reuses old batteries for energy storage or backup power. However, an aging cohort of EV batteries, plus a growing market for second life batteries, means that by 2030, customers may be able to negotiate the sale of their own packs, effectively lowering the price of a new one by $10-$20/kWh, depending on chemistry, configuration, and quality. 

The takeaway? It will no longer be the case that a 10+ year old EV is worthless. It will be very feasible for someone to buy an inexpensive EV and replace the battery pack for a few thousand dollars. 

Why are prices falling?

If you compare the falling prices of lithium batteries with the fairly stable prices in the US oil and gas market, you can see why EVs will only get cheaper.

The price of battery packs are falling thanks to advancing technology. It mainly falls into three buckets, and illustrated by RMI:

1. Cheaper chemistries, such as LFP
2. Higher energy density packs, which give batteries more bang for the buck, and 
3. Recycling/reuse of mined materials, which is a much less expensive way to acquire raw materials.

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The Goldman report adds that prices continue to fall due to, 

A continued downturn in battery metal prices. That includes lithium and cobalt, and nearly 60% of the cost of batteries is from metals. …Roughly over 40% of the decline is just coming from lower commodity costs, because we had a lot of green inflation during 2020 to 2023.

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As we look to the end of the decade, when a lot of today's EVs surpass their warranty term, the threat of a battery replacement should no longer scare off potential owners. Not only are batteries holding up better and longer than expected, it should be cheap to replace them and reuse their slightly degraded packs in a variety of second life uses.