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πŸ’‘ Battery prices continue to drop- what does that mean for electric cars?

πŸ’‘ Battery prices continue to drop- what does that mean for electric cars?

Will electric cars be cheaper to buy than the equivalent petrol cars in 2025? And does it matter when the big shift from petrol to electricity takes place? We have updated our forecast from last spring.

Mathias Sundin
Mathias Sundin

In our very first Optimist's Edge article, we wrote about the future of electric cars, and when these would be as affordable to buy as the equivalent petrol or diesel car.

Now the facts for 2021 have become available and it is time to update the conclusions and see if they still hold true.

Our prediction: Electric cars as cheap as petrol cars by 2025

The main reason why electric cars are more expensive to buy than the equivalent petrol car is the battery. When Tesla's Model S launched in 2012, the battery in the car cost approximately $30,000. But the price has fallen rapidly, by 85 percent between 2010 and 2020 and based on Wright's law, it will continue to fall as total production increases.

Tesla in particular showed on their Battery Day how they would reduce costs by about half between 2020 and 2024.

This means that electric cars will cost as much as petrol cars by 2025. During the second half of the 20s, it will be cheaper to buy an electric car than a petrol car. How many would still choose an ICE car in that scenario?

Is the prediction holding true? New data from Bloomberg

Every year, Bloomberg examines how the cost of lithium-ion batteries is developing. During 2021, it's fallen by six percent. That means 90 percent since 2010.

Near future uncertain

Although the downcard cost trend during the 2020s is still very likely, it is not certain that battery prices will fall in the coming year. The price of cobalt, lithium and nickel has increased recently. Due to contracts with long time frames, Bloomberg believes that we will see the effects of this in 2022, meaning that the price for batteries will be stagnant or increase slightly.

At the same time, the proportion of cobalt in batteries is declining, and we know that the market's response to rising prices frequently is to increase production volumes.

Demand for electric cars is pushing up prices

Electric cars are fast becoming popular and in 2021 demand seems to have increased dramatically. As sales numbers for fossil cars decrease, electric car sales experience a sharp increase. Tesla is increasing its production as much as they can and has raised prices quite significantly during the year, but the waiting times for a new Tesla continue to increase. Other car companies also seem to sell all or most of the electric cars they produce.

The transition defies high prices

Whether the year 2025 stays true for price parity between electric cars and fossil cars remains to be seen, but above all the increased demand may delay the breaking point to 2026 or later.

In spite of this, the shift from internal combustion engine to electric motor seems to have started in earnest. Tesla recently said that they have been caught off guard over the sharply increased interest, even though they had already planned for a massive expansion of production capacity with new factories in both Berlin and Austin.

This April we wrote:

This means that it is very likely that electric cars will surpass petrol and diesel cars in sales between 2025 and 2030.

It's possible that the shift in terms of prices happens later than 2025, while electric cars still outsell petrol and diesel cars before that.

Mathias Sundin