Lower battery prices are expected to eventually boost EV demand

Electric vehicle sales have hit a speed bump, and carmakers around the world are slowing their investment in EVs amid concerns about profitability. But even as our analysts lower their near-term sales forecasts, falling battery prices are expected to eventually boost EV sales.

Goldman Sachs Research lowered its forecast for growth in global battery demand in 2024 to 29% year-over-year, compared to its previous projection of 35%. Battery demand is estimated to have increased 31% in 2023.

The change in outlook comes as carmaker executives in the US raise concerns about EV profitability — partly because of price competition among EV makers amid high raw material prices (which have since moderated) — and as EV subsidies are cut in some European markets, write Nikhil Bhandari, co-head of Asia-Pacific Natural Resources and Clean Energy Research, and analyst Amber Cai in the team’s report.

The previous round of battery metal price increases has added to EV makers’ profit pressure. The increasing electrification of the global economy requires vast amounts of minerals, and the rapid electrification that kicked off around 2020 “overwhelmed the metals market,” Bhandari says. But now supply is catching up and cooling the market for the likes of nickel and lithium that are used in batteries, which can be one-third of the cost of an EV.

In a few months, lower metal prices should start to flow through to EV makers. “The good news is battery prices are now falling rapidly,” Bhandari says. Goldman Sachs Research expects a nearly 40% decline in battery prices between 2023 and 2025, and for EVs to reach breakthrough levels in terms of cost parity (without subsidies) with internal combustion engine cars in some markets next year. Longer term, our analysts project EVs to take a considerably higher share of car sales, reaching 50% in the US and 68% in the EU by 2030.

The bear market for metals is one reason battery prices are forecast to decline. The other is that battery innovation is still ongoing, Bhandari says. Manufacturers are finding ways to simplify the manufacturing of batteries (through structure-related innovations that allow better, simpler packaging), and to use materials, like silicon, that may reduce charging time and increase energy density. Major innovations like solid-state batteries (as opposed to using liquid electrolyte as in batteries today) could, in the coming years, be a game-changer for the industry, as solid-state batteries are expected to allow carmakers to pack in even more energy, for the same amount of weight, than a conventional battery.

“We’ve achieved quite a lot in terms of innovations,” Bhandari says. “For EVs to have a broad-based, economic-driven adoption, we need further step ups — in particular, battery structure-related innovations, as well as commercialization of next-generation technology including solid-state batteries.”

There are other factors supporting the industry as well. The US Inflation Reduction Act’s subsidies could bolster the sector in the domestic US market. EU policy — including the bloc’s carbon emission targets for cars and its plans to prohibit sales of internal combustion engine cars by 2035 — is expected to support demand for EVs. The UK’s zero-emission vehicle mandate, meanwhile, requires 22% of cars to be electric from 2024 (though with some flexibility), and EV subsidies are being extended in Spain and introduced in France.

“The regulatory tailwinds are still in place,” Bhandari says.

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