Would you consider buying an electric car if it were just as expensive as an equivalent model powered by a traditional internal combustion engine? I’m betting many people would, and so does Tesla CEO Elon Musk. At the company's 2020 shareholder meeting, fittingly called "Battery Day", Musk announced his company's plans to bring a $25,000 electric car to market within the next three years that would be "on par" or "slightly better than a comparable gasoline car." To achieve that, Tesla counts on its own ability to dramatically cut the costs of battery packs, which are still the main driver behind the relatively high prices for electric vehicles.
According to estimates from BloombergNEF, Tesla's roadmap might be a bit too ambitious, as the latest increase in commodity prices has slowed down the price drop for electric vehicle battery packs. In fact, battery prices may even rise for the first time in 2022, as prices for raw materials soared in the second half of 2021. "This creates a tough environment for automakers, particularly those in Europe, which have to increase EV sales in order to meet average fleet emissions standards," James Frith, BNEF’s head of energy storage research said. "These automakers may now have to make a choice between reducing their margins or passing costs on, at the risk of putting consumers off purchasing an EV."
As the following chart shows, the inflation-adjusted average price of battery packs for cars dropped from around $1,200 per kWh in 2010 to just $132 this year. How much of a difference does that make to the price of a car, you ask? A big one. Consider the Tesla Model 3 for example: The entry-level version comes with a battery capacity of 50 kWh. Assuming an average price of $132 per kWh that battery now costs around $6,600 instead of $60,000 it would have cost in 2010.