The macro driver behind the global rise of EVs over the past fifteen years may be showcased by this one simple chart: the falling price of EV batteries.

According to BloombergNEF’s Battery Price Survey, the average price of a lithium-ion battery pack has fallen from $1,400 per kilowatt-hour (kWh) in 2010 to $115 in 2024, or a decline of nearly 90%. Given that EV batteries tend to represent 30% to 50% of a vehicle’s total value, the falling price of batteries has enabled automakers to produce EVs at a lower cost. 

Over time, this has led to an increasing number of affordable electric cars being offered on the market. Thanks to these recent decreases in battery price, EVs are approaching upfront price parity with internal combustion engine (ICE) vehicles - likely within the next few years. Experts expect this to be a key moment in the EV market, after which sales are projected to pick up pace dramatically. While some mass-market EV models are now cost-competitive with comparable ICE vehicles, the average EV upfront cost is still more expensive than that of a gas car. 

BNEF’s estimate is a global battery pack price, so while North America has followed this overall trend, the growth of EV battery production by Chinese manufacturers has affected the broader market. For comparison, the average battery pack price in North America in 2024 was $123, not far off from the global average. Meanwhile, China’s average battery pack price was far lower, at about $94 per kWh. U.S. battery manufacturers have been working hard to close the gap. 

Enter the impact of public policy: thanks to the Advanced Manufacturing Tax Credit (45X), U.S. battery manufacturing can better compete with global players. Section 45X provides $35 per kWh for each battery cell, $10 per kWh for each battery module, and covers 10% of the costs of production of the applicable critical materials incurred by the taxpayer. Taken together, this credit could reduce the cost to manufacturers by about $45 per kWh, assuming manufacturers are able to access the full benefit from the credit. This technology-neutral credit incentivizes domestic production of advanced manufacturing while reducing costs to producers. 

Let us assume that before the 45X credit was enacted, producing a battery pack in the U.S. would cost $123 per kWh on average, as illustrated in the BNEF report. If so, the inclusion of 45X would mean that the price of an EV battery pack would be cost-competitive with a Chinese alternative, around $78 per kWh, as demonstrated in the chart below.

The long-term improvement in the cost of battery pack prices has been driven by greater economies of scale, advancements in battery chemistries, increased learnings by manufacturers, and investment in building out supply chains. The success has been indisputable: global battery pack prices have fallen by 90% since 2010, according to BNEF’s survey.

These increased investments within the EV supply chain were spurred not only by the 45X tax credit but also by rising demand and the 30D clean vehicle  tax credit that requires U.S. battery production and domestic critical mineral sourcing, serving as a demand pull. The credits reinforce each other as automakers have cited building out battery and EV manufacturing in the U.S. specifically to pursue these incentives. This demand pull will continue to enable the U.S. EV and battery supply chains to grow and compete in the global market. Building up this domestic supply chain will not only allow the U.S. to become more self-reliant when it comes to critical minerals and materials and the production of key battery components, but it will also create thousands of jobs throughout the U.S. supply chain. 

We are beginning to see many of the first domestic battery manufacturing facilities come online in 2025, which will continue to help build up these economies of scale here in the United States. These facilities are being scaled up in the U.S. as an effort by companies to improve the domestic supply chain. Over time, this will result in lower battery prices for consumers as battery manufacturers reduce their manufacturing costs, allowing automakers to procure cheaper batteries and pass along some of those savings to customers in the form of increasingly affordable vehicles. 

As a result, automakers will soon likely be able to price their EVs at an equivalent upfront cost to gas cars. It also means that consumers will experience the benefits of better electric vehicle products: lower operating costs, faster charging speeds, and improved EV ranges. Much of this will be thanks to the implementation of 45X.