Batteries, EVs' single most expensive component, are getting cheaper, bringing down overall prices

"For car buyers, a new reality is setting in: You don't necessarily have to pay more to go electric.

There are some qualifiers, but the bottom line is a potentially momentous change.

With recent price declines, the cost to to buy and operate some electric vehicles over several years is now roughly on par with their gasoline-powered counterparts. The considerable government subsidies available to EV buyers play a part in this. But in some cases, EVs and their conventional equivalents are at cost parity even without those.

It's true that many electric vehicles still have a higher list price than their gas equivalents. But that gap is closing. For some vehicles, savings on fuel and maintenance costs can make up that difference over 2 to 5 years.

There are other reasons EVs are becoming more attractive, including improvements in charging technology and the availability of public chargers. 

But the main reason for the disappearing cost gap is the declining price of battery packs -- the single most expensive component in EVs.

We can thank two things for the falling cost of those batteries. One is economies of scale. Domestic and international producers have gotten substantially better at churning out batteries.

The other factor, just as important, is the gradual -- and often overlooked -- accretion of countless technological improvements to the battery-manufacturing process over the past decade.

"Battery costs are the biggest contributor to the overall change in the cost of EVs," says Paul Augustine, director of sustainability at ride-sharing company Lyft. "We've seen that cost drop 90% from 2010 to 2020."

From the earliest days of electric vehicles, skeptics and proponents have argued that until electric vehicles cost the same as gas-powered ones, most people are unlikely to switch.

This has led to an almost single-minded focus on bringing down batteries' cost. It's not just that scientists and engineers have figured out how to make batteries less expensively. They also are learning to make new kinds of batteries that use fewer expensive components. 

Some, like new iron-based batteries, known as LFP, that are used in some models by Tesla -- and, in the future, by Volkswagen and Ford -- don't use metals such as nickel and cobalt that are increasingly supply-constrained and expensive.

Iron-based batteries now represent nearly a third of all batteries in electric vehicles, worldwide, and that share may continue to grow, says Ryan Castilloux, managing director at Adamas Intelligence.

Robbie Orvis is senior director for modeling and analysis at Energy Innovation, an energy- and climate-policy think tank. He recently published a paper that found that many new EVs are cheaper to own and operate than their gasoline equivalents, on a monthly basis.

Take, for example, the Mustang Mach-E, Ford's popular electric crossover SUV. This varies by location, but the base model would cost around $46,000 total, if the buyer bought it with cash in New Jersey, according to Edmunds. Assuming a one-time $2,000 tax credit -- the amount varies, but that is at the low end of what a consumer can expect -- the total cost to own such a vehicle over 5 years, including depreciation, insurance, fuel and maintenance costs, is coincidentally also about $46,000. A federal tax credit, and state credits, could bring that amount even lower for those eligible.

Compare that with a comparable gas-powered Toyota RAV4. If a buyer pays cash and purchases it in the same location, that RAV4 costs around $34,000, according to Edmunds. But, thanks mainly to gasoline costs, the RAV4's total cost of ownership over 5 years is about $45,000.

Similar calculations can be done for low-end EVs, including the Chevrolet Bolt, the lowest-priced EV in America, with a list price of $26,500. That's about $2,500 more than a comparable gasoline-powered Hyundai Kona, which has similar dimensions and cargo capacity. Assuming it is driven 15,000 miles a year and charged primarily at home, the Bolt can easily make up that difference on fuel savings alone, in the first couple of years a person owns it, according to Edmunds.

That doesn't include state and federal tax breaks a buyer of such a Bolt can take advantage of. For many buyers, those incentives bring even the upfront, cash cost of a Bolt well below its gasoline equivalents. In a very real sense, the federal government decided to pay drivers to go electric.

In 2022, the price of a battery pack for an electric vehicle ticked up 6.9% from the year before, according to BloombergNEF, which compiles data on transportation and renewable energy. The main reason for this was spiking prices for critical components in the batteries used in most EVs, including lithium, nickel and cobalt.

That sparked fears that the EV revolution might be constrained for decades to come. But several things happened.

First, new sources of these critical minerals have rapidly come online, just as the global economy has cooled and consumers have pulled back on purchases of new vehicles and consumer electronics. In recent months this has damped prices.

At the same time, the auto industry has been rapidly adopting iron-based battery technology.

China-based battery manufacturers, using considerable subsidies from the Chinese government, built the manufacturing capacity to make them at scale. Such batteries now power the majority of EVs in China and are an option on some Tesla Model 3s in the U.S. Ford has committed to importing them from China and using them in some of its vehicles. Ford also has committed to building a $3.5 billion factory in Michigan to produce them, with help from China's Contemporary Amperex Technology.

Batteries used in consumer electronics and most electric vehicles in the U.S., which contain nickel and cobalt, are more energy-dense, which means they can give cars longer range. 

Iron-based batteries, on the other hand, are cheaper, tougher and can last longer.

There are reasons to believe EVs could become even cheaper than their conventional equivalents in the near future.

Collectively, the world's auto makers will spend more than half a trillion dollars through 2026 on building and developing EVs, according to consulting firm AlixPartners. That investment, supplemented by billions of dollars from the Infrastructure Investment and Jobs Act, will lead to further economies of scale in building EVs.

Mr. Augustine, of Lyft, says that some of the company's drivers who clock hundreds of miles a week have for years found that existing EVs cost them less to own and operate than gasoline vehicles. As prices for EVs continue to fall, and models proliferate, a much larger portion of drivers for ride-hailing companies will shift to EVs, and the same will be true for everyday buyers of cars for personal use, he adds.

As this transition unfolds, it could soon put buyers of gas-powered vehicles in an unprecedented position: They'll have to pay a premium to stick with last-generation technology." [1]

1.  EXCHANGE --- Keywords: Electric Shock: Plug-Ins Get Cheaper --- Batteries, EVs' single most expensive component, are getting cheaper, bringing down overall prices
Mims, Christopher.  Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 04 Mar 2023: B.2.