News Article

What Role do Batteries Play in the Cost of an EV?

By Alejandro Enríquez | Thu, 05/13/2021 - 06:00

Batteries are the most expensive component of EVs, accounting for between 20-30 percent of their total cost. Battery prices, however, have been declining over the past few years.

Despite the pandemic, electric vehicle (EV) sales had an outstanding performance during 2020. For the first time in history, EV represented 4 percent of total sales after growing by 40 percent year-on-year. Today, the EV park worldwide surpasses 10 million cars. Nevertheless, there is a long road ahead to achieve the ambitious carbon neutrality goals of both OEMs and countries and batteries will key to advance electrification.

In Mexico, EVs also saw record sales in 2020. Electric, plug-in hybrid and hybrid light vehicles have consistently increased their share of Mexico’s total sales, going from 0.5 percent in 2016 to over 2.1 percent in 2020. Despite the pandemic, EV and plug-in hybrids sales grew year-on-year by 47.2 percent and 35.7 percent, respectively.

Boston Consulting Group (BCG) explains that batteries remain the most expensive component of EVs but prices have been steadily declining, mostly due to "innovation in cell chemistry and pack assembly, greater production scale and improved manufacturing processes." BCG explains that tough government regulations will remain the primary drivers of electrification and new EV models and lower battery costs can help.

By 2023, OEMs are expected to have developed over 300 battery electric and plug-in hybrid models, offering a variety of options for customers. In fact, BCG expects that in a five-year period EVs' total cost of ownership will be equal to internal combustion engine vehicles without government incentives. "We project that battery pack costs will have dropped to US$75 per kWh and that the global market share of EVs will rise to 28 percent," the firm says.

Innovation aside, the pursuit for nickel and lithium, two key raw materials for EV battery production, is starting. Volkswagen AG recently announced that in 2030 demand for batteries in Europe alone will surpass the demand seen by all automakers globally in 2020. Bottlenecks are likely to happen in the short-term as battery prices continue to fall. “Lithium demand will continue to grow 15-20 percent up to 2025 and grow by 10 percent thereafter.  The world will need large grid storage batteries that are lithium-based,” Peter Secker, CEO of Bacanora Lithium, told Mexico Business News.
Last year, lithium rose to the spotlight as the majority party in both houses of Mexican congress aimed to "nationalize" the metal, as reported by MBN. Mexico claimed to hold the world's largest lithium deposit.

At the time, only a few hybrid models are produced in Mexico and one EV, Ford's Mach-e. But this scenario is likely to change as GM recently announced a US$1 billion investment to manufacture EV at its Ramos Arizpe plant. If battery prices continue to decrease, conditions are set for Mexico to play an important role in the EV battery supply chain.




Alejandro Enríquez Alejandro Enríquez Journalist and Industry Analyst