EV battery costs set to halve by 2026, Goldman Sachs reports

Goldman Sachs Research says the cost of batteries for electric vehicles (EVs) is set to drop significantly, potentially revolutionizing the automotive industry. They expect the average price to fall from $149 per kilowatt-hour (kWh) in 2023 to about $80/kWh by 2026. That’s a huge drop—almost 50 percent.

There are two big reasons for this:

• Technological advancements: Newer batteries are packing in 30 percent more energy while costing less. Besides, remarkable innovations like cell-to-pack tech simplify production and boost energy capacity.
• Falling green metal prices: The price of key metals like lithium and cobalt, which make up around 60 percent of battery costs, is dropping. These metals increased in price from 2020 to 2023 but are now on the decline.

The EV battery market remains dominated by lithium-based chemistries:

• Nickel-based batteries: ~60 percent market share
• Lithium Ferrophosphate (LFP) batteries: 35-40 percent market share
• Sodium-ion batteries: Emerging technology with limited current production

While solid-state batteries were initially anticipated to disrupt the market, their development has been delayed. Consequently, existing lithium-based technologies are expected to strengthen their position, with LFP batteries projected to increase their market share to 45 percent by 2025.

The battery industry also presents significant barriers to entry:

• Extended development cycle: 10+ years from R&D to production
• Manufacturing expertise: Achieving cost-effective, high-quality production at scale
• Skilled labor shortages

Because of these challenges, a handful of companies dominate the market—about five control roughly 80 percent of it. That makes it challenging for new players to break in, especially since the industry is in a downturn.

Goldman Sachs thinks that by 2026, the total cost of owning an EV will be about the same as owning a regular gas car in places like the U.S. 

While regulatory support may drive near-term EV adoption, particularly in 2025, a consumer-led adoption phase is expected to commence in 2026 as the economic advantages of EVs become more apparent.