This week, with the release of battery pricing data for 2021, I want to better understand what it will look like in the near future.
The first is the numbers: According to Bloomberg New Energy Finance’s annual battery price survey, the average price of lithium-ion battery packs dropped to US$132 per kilowatt hour in 2021, a decrease of 6% from the previous year’s US$140 per kilowatt hour. The new average is closer to the benchmark of $100 per kilowatt-hour, and the researchers say this is the approximate point at which the cost of electric cars and gasoline-powered cars are roughly the same.
Although the price has declined in 2021, due to the increase in the cost of key materials such as lithium, cobalt, and nickel, the decline was not as expected by Bloomberg New Energy Finance. The rise in material costs has led analysts at the research company to say that battery prices appear to be expected to rise slightly next year. But the same analysts expect that as the production of electric vehicles increases and the company finds economies of scale to save, battery prices will soon return to decline.
According to Bloomberg New Energy Finance, by 2024, the average price of batteries should reach US$100 per kilowatt hour. However, the battery price report stated that if automakers cannot find a way to alleviate the increase in material costs, the time for the price to reach $100 may be delayed by two years.
The benchmark of $100 per kilowatt-hour is now close enough that car buyers should understand its meaning and meaning. For example, does this battery price mean that I can walk into any dealer and buy an electric car at the same or lower price as a gasoline car with the same features? No.
Consumers should view the $100 benchmark as the high end of the battery price range where electric vehicles start to achieve cost parity with gasoline vehicles. The range ranges from approximately US$60 to US$100 per kWh.
It will take years for this transformation to be reflected in manufacturers and vehicle types.
Once the price reaches around US$60 per kWh (predictors say this may occur around 2030), then electric vehicles should be cheaper than gasoline models in almost all car segments (including pickup trucks and SUVs.
But when comparing prices between electric and gasoline vehicles, it is important to define terms. So far, I have been describing this with the purchase price of the new car, which is a simple calculation.
A more complex calculation is the “total cost of ownership”, which includes fuel, insurance, maintenance, and depreciation. From this perspective, electric vehicles usually do better than gasoline vehicles because they can save fuel and maintenance costs.
The Federal Department of Energy provides a calculator to help consumers estimate cost differences, including the difference between gasoline and electricity. For example, the tool shows that the purchase cost of an all-electric Chevrolet Bolt (a subcompact hatchback) is about 15,000 higher than the Chevrolet Trax (a subcompact SUV that uses gasoline, excluding tax credits for electric vehicles) Dollar. But Bolt’s annual operating costs have been reduced by approximately US$700.
Cars and Drivers compared the cost of ownership last year and found that the cost of the all-electric Mini Electric within three years is roughly the same as the cost of its equivalent gasoline, while the all-electric Hyundai Kona is more expensive than the equivalent gasoline. These figures do not include state and local tax credits.
With the decline in battery prices, the purchase price gap should continue to narrow, and the operating costs of electric vehicles will continue to decrease. Tax credits, such as the US$7,500 per car credit that Congress is considering, as part of the “Rebuild Better” bill, are also a major factor in achieving cost parity between electric and gasoline vehicles.
Although we don’t know when electric vehicles will cost less than gasoline models, analysts told me that this will undoubtedly be coming.
A 2019 paper tried to predict changes in the price of electric vehicles for various types of vehicles from that year to 2030. The results illustrate some of the points that over time, the price of electric cars will drop to roughly the same level as gasoline cars, and then electric cars will be cheaper.
With the decline in the price of electric vehicles, a virtuous circle in which the decline in prices will help increase sales of electric vehicles. As sales increase, automakers will increase the production of electric vehicles to meet demand, which will lead to economies of scale and further reduction in cheaper prices.
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