Battery Supplier Deals Are Key to Lower EV Prices

By · February 04, 2016

2017 Chevrolet Bolt

2017 Chevrolet Bolt

Carmakers don’t openly talk about what they pay to suppliers for components. The cost of batteries for electric cars is one of their most tightly controlled secrets. So when Mary Barry, chief executive of General Motors announced last year that her company brought its battery cost down to $145 per kilowatt-hour for the forthcoming Chevy Bolt, it came as a surprise. The Bolt will have a range of 200 miles and a starting price of just $35,000 before federal incentives, giving it Tesla-like range at a Chevrolet price point.

The simple math would suggest that the Bolt’s pack would be $8,700—but the variability of cost for cells, packs and installation make it difficult to pin down exact numbers.

Barra’s presentation at the GM Global Business Conference last October also included a graph showing GM’s projected battery costs moving forward, revealing that the carmaker expects to pay $100 per kWh by 2022. Tesla’s JB Straubel echoed this assessment stating that his company would be “disappointed if battery costs were not in the $100 dollar range by the end of this decade.” (Analysts are less prone to optimistic estimates. In earlier 2015, Lux Research put the estimated price by 2025 at $172 per kilowatt-hour.)

Chevy’s battery supplier LG Chem was reportedly miffed at the disclosure, which is understandable considering that LG has agreements to supply several other carmakers with cells for their plug-ins. LG’s “strategic partnership” with GM means that LG will be supplying a lot more than just the Bolt’s battery packs. LG will also manufacture the motor, power invertor, on-board charger, high power distribution module, battery heater, instrument cluster and infotainment system, along with several other key components for the Bolt.

Where’s the Sweet Spot?

Speculation about how much GM, Nissan, Tesla and others pay for battery packs has persisted from the time carmakers launched their first plug-in models.

During those early EV days in 2011, MIT Technology Review reported a range of per-kilowatt-hour estimates from battery researchers, think tanks, investment banks and advocacy groups. Experts speculated storage costs between $600 per kWh and $1,105 per kWh. By 2020 the experts said, carmakers would be paying somewhere between $225 per kWh and $600 per kWh. The rapid decline in cost bodes well for EV prices.

2017 Chevrolet Bolt

The 2017 Chevrolet Bolt will utilize a 60 kilowatt-hour battery pack.

Chevy’s current supply deal is the first publically announced instance of a carmaker cutting its battery costs below the $150 per kWh threshold. That’s the cost that some analysts see as the barrier for electric vehicles to move beyond a niche market to compete with gas cars on the mainstream US market. (With gas prices plunging to 10-year lows, the breakthrough price could be revised lower.)

Last September, Jefferies Securities predicted that Tesla’s new Gigafactory could drive prices to $88 per kWh in the near term, and a transformational $37 per kWh over time as production increases and technology improves.

EV Future Determined at the Pump

Despite a drop in battery prices that exceeded the most optimistic projections, plug-in vehicle sales remain sluggish. The roughly 400,000 plug-ins on roads in the United States are a far cry from the goal of 1 million by 2015 set by President Obama in his 2011 State of the Union address—or the 1.5 million global sales that Nissan-Renault targeted by 2016. Plug-in sales actually declined six percent in 2015 compared to the year before.

The obvious culprit in depressed electric vehicle sales is gas prices, which have fallen roughly 50 percent since Obama’s 2011 State of the Union. Actually, plug-ins haven’t fared as badly as conventional gas-electric hybrids, which fell 15 percent last year. Hybrid production began to reach economies of scale just as oil prices reached record highs about 10 years ago, while plug-ins have faced a much less hospitable climate.

Meanwhile, the auto industry is gearing up for all kinds of electrified vehicles, including more gas hybrids, plug-in hybrids and EVs. It’s the only way automakers can meet increasingly stringent fuel economy and zero-emissions standards. But no matter how tough the regulations get or how low battery costs fall, EVs and plug-in hybrids could struggle to gain widespread acceptance until the gas pump gives consumers the incentive to take the plunge.

New to EVs? Start here

  1. Seven Things To Know About Buying a Plug-In Car
    A few simple tips before you visit the dealership.
  2. Incentives for Plug-in Hybrids and Electric Cars
    Take advantage of credits and rebates to reduce EV costs.
  3. Buying Your First Home EV Charger
    You'll want a home charger. Here's how to buy the right one.