The battery pack is the most expensive component of the entire electric vehicle. According to BloombergNEF, the average cost was $137/kWh at the end of 2020. Although the estimates can vary, averaging 30% of the total cost of the vehicle, even moderate savings to this component would have a huge impact on the overall cost of the car manufacture and price.  However, more recent analyses predict that the prices will start going up again due to the rapidly growing demand for EVs. 

According to McKinsey Center for Future Mobility, “Apart from a few premium models, OEMs stand to lose money on almost every EV sold, which is clearly unsustainable. Battery costs represent the largest single factor in this price differential. As industry battery prices decline, perhaps five to seven years from now, the economics of EVs should shift from red to green.”  

Currently, a significant proportion of EVs on sale find themselves in the luxury category of vehicles, so it is easier to “hide” high battery costs. Manufacturers need to alter the cost structure to make EVs profitable, especially as government subsidies start diminishing. 

McKinsey reports that, “A reduction in battery capacity to 40 kWh, from 50 kWh, would save $1,900 to $2,100 today, while the range would still enable most consumers, especially those in urban environments, to complete trips without any sacrifice to their daily routines.”  

This blog post is an excerpt from Driving EVs to Profitability. To read more, you can download it here