EV Battery Prices are Dropping, But Maybe Not Fast Enough
A new study by McKinsey & Company’s consultants sees dramatic drops ahead for lithium-ion battery packs, from $500 to $600 (some say $800) per kilowatt-hour today to $200 per kilowatt-hour by 2020, and $160 per kWh by 2025.
“In the U.S.,” the study says, “with gasoline prices at or above $3.50 a gallon, automakers that acquire batteries at prices below $250 per kWh could offer electrified vehicles competitively, on a total-cost-of-ownership basis, with vehicles powered by advanced internal-combustion engines.” There are a number of other studies that say the same thing, and we’ll look at them in a moment, but the question before us here is whether we can wait until 2020 for that kind of breakthrough. And could such price drops actually occur sooner?
Faster Pace Needed
There’s a sense of urgency to get battery prices down. We’ve already lost Aptera and Bright, and any number of other start-ups face an uphill climb to profitability. The public hasn’t rushed to buy $30,000 EVs. At the Clean Energy Summit last week, Elon Musk, CEO of Tesla, said, “The challenge Tesla faces over the next several months, which is a very difficult one, is to scale up production and achieve enough of a gross margin on the product that we get to a situation where we're cash-flow positive. If we aren’t able to do that we will join the graveyard of all the other car company startups of the last 90 years.”
Musk has noted elsewhere that he was stupefied by the burn rates of automotive start-ups. Make that double when the cars are battery powered, and the packs retail for $15,000 to $20,000. A 2010 MIT report said that 80 percent of the drive system cost in a plug-in hybrid is the batteries (the electric motor, inverter and power control unit are fairly affordable). And Tesla is actually in a very good position compared to most of its competition, including Fisker, Coda and Wheego.
The Chinese Connection
The McKinsey report said that “lower components prices” would account for 25 percent of the price drop, with more cuts coming from moving production to the most cost-effective locations (ie, China). The latter point is interesting, in light of the political uproar over the projected Chinese investment in American (and federally subsidized) A123 Systems. The Obama Administration’s $2.4 billion advanced battery program was aimed at locating as much battery production as possible in the U.S. In the case of A123, however, it’s had the effect of persuading the company to expand production capacity in Michigan before the automakers were ready.
It's possible that price drops will happen through technical innovation, and that's why a lot of people are focused on the claims being made by Envia Systems, which says it has achieved energy density of 400 watt-hours per kilogram (and has some fairly authoritative test results confirming it), and talks of $20,000 electric cars with 300-mile range. Dan Akerson, CEO of General Motors, whose investment arm put $7 million into Envia, said last week that the company could be ("50-50") on track for an affordable 200-mile-range car.
Some predictions put the cost reductions ahead of 2020. The U.S. Advanced Battery Consortium (USABC) is aiming for $400 a kilowatt-hour by 2015 and $150 per kWh by 2020, but it’s been overly optimistic in the past. Lux Research thinks that li-ion battery costs could come down 45 percent by 2022, roughly analogous to a five percent improvement per year.
And here’s an optimistic note: Bloomberg New Energy Finance says in its quarterly Electric Vehicle Battery Price Index that the average li-ion battery cost $689 per kilowatt-hour in the first quarter of 2012, down 14 percent from $800 a year ago and down 30 percent from $1,000-plus in 2009. By 2030, Bloomberg indeed sees the magic $150 per kilowatt hour (in 2012 dollars).
A Cleaner Grid
Beyond price, a new Union of Concerned Scientists (UCS) “State of Charge” study reports an EV advantage I’ve long cited—the longer you own it, the cleaner it becomes. Because the feds and new tech are cleaning up the grid, “By 2025, for 70 percent of Americans, charging their electric vehicle (EV) on the regional electricity grid would result in lower global warming emissions than even today’s most efficient gasoline hybrid, the 50 miles per gallon (mpg) Prius, up from 45 percent today,” UCS said.
We all know that EVs have many virtues, but that will be academic if they can't be priced for affordability by the average American car buyer. People want to do the right thing, but they can't break the bank in the process.
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