The electric vehicle battery r(EV)olution

How cheaper batteries are driving electric vehicle adoption.


Jeff Spiegel Oct 20, 2021

KEY TAKEAWAYS

  • Electric vehicles (EVs) are projected to reach price parity with gas-powered vehicles in the next few years and can offer thousands of dollars in lifetime savings.
  • Declining battery prices should continue to bolster EV sales — lithium-ion battery prices have fallen nearly 90% in the last decade.1
  • As EV adoption continues, technological developments such as battery recycling programs could lead to more efficient supply chains and reduce battery prices.

A lifetime of savings

After years of showing promise, electric vehicle (EV) adoption is kicking into a higher gear as global EV sales rose 160% in the first half of 2021.2

The price competitiveness of EVs is charging ahead as well — models of many new cars are being priced more cheaply than their gas-powered equivalents. In April 2021, for example, Audi unveiled its 2022 Q4 e-tron electric SUV at a price below the gas-powered Q5 SUV.3

And it’s not just about sticker prices — the total cost of ownership of EVs is becoming more attractive compared to gas-powered vehicles. By some estimates, across a wide range of vehicle classes and types, EVs offer lifetime savings anywhere from $4,000 to $18,000.4 With savings expected to mount, drivers could potentially adopt EVs faster than expected — a potential growth opportunity for ETF investors.

The $100 energizer bunny

Batteries are the most expensive component of EV production, but lithium-ion battery prices have fallen by 90% in the last decade.5 A key number to watch is $100/kWH — the cost at which EVs could achieve cost parity with internal combustion. Today the average cost of an EV lithium-ion battery pack is $137/kWh, but some analysts predict this could fall to $100/kWH by 2023.5

Recycling as a cost-reducer

EV batteries, which are much larger and heavier than traditional batteries, deplete significantly in the first five years of use and typically have a 10-year lifespan.6 Recycling technology will help alleviate concerns around battery waste and supply chain efficiency and help further drive down price of lithium-ion batteries. In fact, the U.S. battery-recycling market is expected to reach $25 billion.7

Car-makers are taking note of the opportunity. In September 2021, Ford Motor announced a $50 million investment in a battery recycling startup.8 The investment will help the manufacturer recycle its own EV battery materials, creating a “closed loop” supply chain that lowers production costs.

For investors, the emergence of a new generation of companies in EV supply chain, including the recyclers, as well as companies involved in the collection and transport of recyclable materials, means a new pool of potential investments.

Chart: EV supply chain, including recyclers

Source: BlackRock (as of October 2021). For Illustrative Purposes only.


Reasons to consider owning EVs

Federal investments may be on the way. Spending proposals are being directed towards EVs and EV infrastructure, and potentially enhanced tax credits for consumers and producers could mean more EVs on the road and signal a long-term opportunity for investors.

Conclusion

Declining battery prices, new innovations and emerging companies are transforming the EV value chain. Investors may want to consider a megatrends approach to investing in targeted themes such as EVs. Megatrend ETFs can help capture the potential of new technologies, while still diversifying across the many companies that are poised to potentially benefit from growth in the theme.

Jeff Spiegel

Jeff Spiegel

Head of U.S. iShares Megatrend and International ETFs

Tanya Chanda

Megatrends Strategist

Contributing author