The “All-Weather” Portfolio is Toast
Not surprisingly, lithium-ion battery prices have been falling at a dramatic pace as EV unit demand has picked up. From 2010 to 2019, battery packs have fallen from $1,100 per kilowatt-hour to $156 per kWh—an 87% price decline.
Just from 2018 to 2019, lithium-ion batteries dropped by 13%. In their study, Bloomberg New Energy Finance models for another 35% price decline from $156 per kilowatt-hour to $100 per kilowatt-hour by 2023.
Even so, this price model by Bloomberg New Energy will likely be wrong. FMT believes the market will possibly be at $100 per kWh before the end of 2020. Our research has revealed that almost every modeling consultancy has estimated falling cost curves less quickly than what has transpired.
As unit demand picks up for electric vehicles (EVs), there is a coincident price decline on the cost curve for lithium-ion battery packs, which creates a virtuous cycle. You can see the virtuous cycle in numbers.
From 2017 to 2018, EV sales grew by 40% year-over-year. From 2018 to 2019, EV sales jumped once again by 81%. The huge increase of 81% in units sold between 2018 to 2019 aligns with a huge drop in lithium-ion prices per kilowatt-hour by 13% over that time-frame.
Lithium-ion batteries are the single largest cost component in EVs. As the prices of EV batteries have substantially declined, EV unit sales have simply started to explode because sticker prices have come down.
This enormous growth and virtuous cycle are in its embryonic stages. In no time at all, EV sticker prices will be cheaper than comparable combustion engines right off the lot.
Tesla’s Model 3 is already the #1 selling car in California and the price of the Model 3 will continue to drop.
In just under a few years, FMT estimates that EVs will start to account for over 30% of all vehicles sold and will continue to increase as a percentage of the fleet on the road until they are the vast majority.
Very few people see this exponential growth happening. It is hard to see the virtuous cycle of continually falling battery prices along with the coincident drop in EV prices creating exponential growth unless you dig a little.
This is a major trend that is going to have a dramatic impact on the long-term price of crude oil and our American landscape over the coming years.
The theory of peak oil is dead. We are going to have plenty of oil for the next thousand years, and as we see a continued shift toward the much cheaper and better technology (electric vehicles) investors and workers need to be mindful of sudden impact and how it will affect them.
Nicholas Green, CIO
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