The traction battery is the most valuable component in an electric car. And cell prices are continuing to plummet. The global ramp-up of electric vehicle production is therefore not only ecologically inevitable but also economically.
Anyone with visions should see a doctor. That’s what former German Chancellor Helmut Schmidt once said. The politician probably confused visions with hallucinations. Because a positive idea of the future can be a very good thing indeed. One example is the traction batteries in electric cars. The notion that cells could become as cheap as they are today was extremely optimistic ten or fifteen years ago – a true vision. The reality now is both good and affordable. And everything is getting even better – prices will keep falling, though not radically.
Industry insiders report that around two years ago, the battery cell trade flipped: from a sellers’ market, where vendors dictated prices, to a buyers’ market, where demand sets the pace. For anyone still unaware: nothing is as crucial to the ramp-up of electric vehicles as falling battery prices. Motors and power electronics also need to be paid for, of course. But for the economic viability of electric cars, the battery is decisive.
Conversely, the success of electric cars is inevitable if the economic advantage becomes clear across more and more markets and scenarios. That is roughly the situation today.
The currency is euros per kilowatt hour
So what counts as a low battery cell price? Ines Miller of consultancy P3 Group is an expert in all aspects of traction batteries for electric vehicles. In an analysis, she writes that the costs (note: not the final customer price) for the automotive industry were recently around 54 euros per kilowatt hour for LFP cell chemistry and 58 euros per kilowatt hour for NMC cell chemistry.
By comparison, in 2022, at the height of the speculative lithium boom and with raw material challenges due to the Covid pandemic, the figures were still 127 euros (LFP) and 140 euros (NMC).
The currency is thus euros per kilowatt hour (kWh), which is easy to grasp: for a Kia EV3 with 81 kWh and a range of over 600 kilometres, the manufacturer must invest around 4,700 euros. Back in 2015, Kia still offered the Soul EV, which had 27 kWh at the time. In a similar segment, energy content has therefore tripled in ten years!
Another minus 15 per cent by 2030
Miller’s forecast: “We expect prices to fall by a further ten to 15 per cent by 2030.” The potential for further price reductions comes partly from capacity expansions at factories and partly from production process improvements as well as modifications in cell chemistry.
However – and this is a problem for European cell factories – according to P3, the cost advantage of batteries from China remains. The prices quoted above refer to cells imported from China, including all export costs and the mandatory battery passport. These are over 20 per cent cheaper than cells manufactured in Europe, regardless of whether the production site is operated by a Chinese or a European company.
Nevertheless, demand in Europe is growing, from around 0.3 terawatt hours (TWh) per year today to roughly 1.6 TWh by 2035. That is more than a fivefold increase, with approximately 70 per cent of this volume going into passenger cars, ten percentage points into commercial vehicles and the remainder into home storage and other products.
Let’s shift perspective again and adopt the mindset of an electric car developer: when Volkswagen, for example, designs its small ID.1 model, an affordable entry price of around 20,000 euros is always at the forefront. Those involved must thus consider what the cell price will be in 2027 and subsequent production years and design the traction battery accordingly.
The right balance between cost and range
Is it, for example, 30 kWh? The automotive industry also likes to offer multiple battery size options for this reason. To continue the example: Volkswagen must offer a base version of the ID.1 at around 20,000 euros, with sufficient range for commuters, delivery services, and care workers. That might mean 30 kWh.
Beyond that, a premium version with around 55 kWh is conceivable. If adding 25 kWh at approximately 50 euros per kWh costs the manufacturer 1,250 euros, but the additional range can fetch a gross list price that is 3,000 or 4,000 euros higher, this is very, very attractive for the manufacturer – in this case, VW.
Back to the starting point: the significance of falling battery prices. The automotive industry is now making money on every electric car sold. The question remains whether the margins are as high as for internal combustion engine cars.
Volkswagen claims margin parity for small car family
Given the collapse in battery cell prices, this question gains further relevance. Volkswagen, for example, aims to achieve the same profit margins with its MEB Small platform (from 2026) as with comparable combustion engine vehicles. The margins on the VW ID.2 and ID.2X are thus intended to match those of the Polo and T-Cross.
If Volkswagen communicates this publicly for the especially price-sensitive segment, it is highly likely that in the premium segment, even higher profits might be possible with electric cars than with the complex drivetrains of combustion models.
This is far from absurd; an upper-class saloon, for example, often comes with mechanical all-wheel drive, an automatic gearbox with eight or more speeds, a combustion engine with numerous cylinders and variable valve timing, turbochargers and/or superchargers, plus a multi-stage exhaust after-treatment system that in diesel models even requires an additional tank. A comparably powerful electric drive system is far simpler – and consequently likely to be more profitable.
Sadly, parts of the automotive industry still indulge in self-pity over supposedly low EV profitability. This is an attitude that should be reconsidered.
Risk of strategic dependence on China
Is it all good news? No. The higher costs for battery cells produced in Europe (even when they come from CATL or BYD) cement China’s dominance. This has already led to strategic dependence. What happens if the Chinese government decides to invade Taiwan? As a countermeasure, the automotive industry is still called upon to diversify supply chains. Canada, for example, has a lot of potential – and it is being utilised.
Nevertheless, the realisation remains: it is not that battery cell prices might one day fall significantly – it has already happened and will continue. Prices can fluctuate up or down in the short term; this changes little in the big picture. Combustion engine cars, on the other hand, are losing competitiveness every single day.
