In a development that could significantly accelerate the adoption of electric vehicles (EVs), a new study by Goldman Sachs Research predicts that the cost of lithium-ion battery packs will plummet to $82 per kilowatt-hour (kWh) by 2026. 

According to Goldman Sachs, this dramatic price drop, roughly half of 2023 prices, is expected to make EVs cost-competitive with traditional gasoline-powered vehicles in the United States (U.S.) on a total cost of ownership basis, even without subsidies.

Battery prices have been on a steep and accelerating downward trajectory, making EVs increasingly affordable. In 2013, the average cost of batteries stood at $780 per kilowatt-hour (kWh). By 2022, this figure had dropped to $153/kWh, and by 2023, it further declined to $149/kWh. Looking ahead, projections for 2024 estimate prices will fall to $111/kWh, with a continued decline to $82/kWh by 2026.

This rapid decrease in battery costs is primarily driven by two key factors, as noted by Nikhil Bhandari, co-head of Goldman Sachs Research’s Asia-Pacific Natural Resources and Clean Energy Research. The first is technological innovation. New battery products are entering the market with around 30% higher energy density, which helps reduce costs while improving performance. 

The second factor is the declining price of critical battery metals like lithium and cobalt, which make up nearly 60% of the total battery cost. Lower metal prices have contributed significantly to the overall reduction in battery production expenses.

Technological advancements in battery design have significantly contributed to the increase in energy density in EVs. One major innovation is the development of larger battery cells, which allow more energy to be stored in a smaller footprint. This shift towards larger cells optimizes the use of available space within the battery pack.

Another key advancement is the transition from module-based designs to cell-to-pack configurations. By eliminating the need for intermediary modules, this approach saves valuable space and reduces manufacturing costs, making the production process more efficient. Additionally, these simplified battery structures help maximize overall energy capacity, further enhancing the performance and range of EVs. 

Currently, two lithium-based chemistries dominate the market: Nickel-based batteries take 60% market share whileLithium Ferrophosphate (LFP) batteries take 35% to 40% market share. 

While emerging technologies like solid-state and sodium-ion batteries show promise, they face challenges in scaling up to mass production. As a result, Goldman Sachs has revised its projections, now expecting LFP batteries to increase their market share to 45% by 2025.

The battery industry remains heavily concentrated, with five companies controlling nearly 80% of the market share. High entry barriers, including lengthy R&D cycles and the need for manufacturing expertise, make it challenging for new entrants to compete effectively.

The projected price parity between EVs and internal combustion engine (ICE) vehicles by 2026 is expected to drive a significant rebound in EV demand. Bhandari notes, “We think we’re going to see a strong comeback in demand in 2026 purely from an economics perspective. We believe 2026 is when a consumer-led adoption phase will largely begin.”

As a result, this shift is crucial for the EV market, which has recently experienced a slowdown in demand growth in the U.S. due to factors such as high vehicle costs and interest rates.

In the near term, the EV market faces several challenges despite its promising long-term potential. One of the key hurdlesis the significantly higher average price of EVs compared to their gas-powered counterparts, making them less accessible to a broader range of consumers. This price gap remains a barrier as the industry works to bring costs down through innovation and economies of scale.

Traditional automakers are also grappling with profitability issues in EV production. High battery costs, coupled with relatively low production volumes, are making it difficult for these companies to turn a profit. As a result, automakers are still heavily reliant on government incentives, such as the $7,500 EV tax credit, to help bridge the affordability gap and stimulate demand.

Read More: Study Reveals EV Batteries Likely To Outlast Vehicles With Longevity Of Over 20 Years

As battery prices continue to fall and EV technology advances, the automotive industry appears to be on the cusp of a transformative period. The projected achievement of cost parity by 2026 could mark the beginning of widespread, consumer-driven EV adoption, potentially reshaping the global automotive landscape.

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