Lithium-ion batteries for electric vehicles have gotten significantly cheaper since 2022 as production capacity rises and technology improves, making EV production more cost-effective for automakers such as GM as battery price falls, a recently published study shows.
Battery price has fallen by 14 percent over the past 12 months according to data revealed in the BloombergNEF Zero-Emission Vehicles Factbook for December 2023.
Rising manufacturing capacity is one of the key drivers of improving lithium-ion battery price, with worldwide production rising 31 percent year-over-year as more factories are built to support the EV sector. Carmakers now have 2.2 terawatt-hours of capacity operational versus 1.7 terawatt-hours in 2022.
The Inflation Reduction Act has had a strong impact on EV production in the United States according to the study. As a direct result of the legislation, more than $103 billion has been invested in the electric vehicle sector since its passage. Of that amount, 72.4 percent has gone to battery manufacturing, helping to reduce battery price via boosting domestic production of EV batteries and battery materials.
Battery price should continue to fall as a large number of battery plants are expected to start operations in 2024 through 2025 as construction catches up with investment. Raw materials, battery material production, and battery recycling are expected to account for roughly another 16 percent of the American investment in the sector, again driven by Inflation Reduction Act incentives.
The situation is improving notably from 2021 and 2022 when lithium-ion battery price in the U.S. was increasing. The BloombergNEF report from last December pegged the price growth at 7 percent year-over-year. Surging material costs provided the main impulse behind the increased costs.
Battery price is a major cost input for EVs and one of the reasons GM CEO Mary Barra said back in June that $30,000 to $40,000 electric vehicles are not currently profitable to automakers. She specifically identified the battery as the main reason for this situation. Notably, while the 2024 Chevy Equinox EV was slated to fall in that range, GM is releasing the $48,995 2RS trim in FWD and the $52,395 2RS with AWD first, with the $34,995 base 1LT to arrive later.
There is light at the end of the tunnel, however, as GM expects to reduce battery price to $87 per kilowatt hour by 2025 compared to the $141 a kilowatt-hour’s worth of battery cost in 2022.