Remember when plasma TVs were $10,000? Well, now they’re less than $400 – and that’s for a Panasonic 42″ model at Wal-Mart, not even a Chinese knockoff unknown brand.
Well, if a report from McKinsey released today (via Automotive News) is to be believed, we may see a similar price reduction in lithium ion battery technology, used in the newest hybrids and EVs. And just as a $10,000 price tag on a plasma TV is a huge barrier to mainstream adoption and a $398 price tag invites it, falling EV/hybrid battery prices could spur EV adoption fairly rapidly, as long as manufacturers’ product plans, battery availability and costs, and consumer demand all stay in sync.
McKinsey’s report predicted that by 2020 (which is eight years from now, for you math-challenged folks), pricing for complete lithium-ion batteries for EVs will fall from the current $500-600 per kilowatt hour to just $200 per kWh. Further, McKinsey predicts that by 2025 (13 years from today), the price will drop to just $160 per kWh. These prices assume no inflation – but when prices are dropping for a particular component, macroeconomic inflation is not really a big factor.
Using the Chevrolet Volt and its 16 kWh battery pack as an example, assuming it currently costs GM $500 per kWh, that battery pack costs about $8,000 today. (I have said that the Volt is really just a $20,000 car with an $15,000 powertrain – this kind of proves that). By 2020, if li-ion batteries drop to $200 per kWh, the Volt’s battery would cost just $3,200. That’s a reduction of $4,800. By 2025, a 16 kWh battery pack should cost $2,560.
Now, don’t expect all of these savings to drop directly to the car’s MSRP. Some will be earmarked for profit margins, and a decent amount may be consumed by increasing battery capacity. After all, aside from cost, I believe that one of the biggest obstacles to widespread EV adoption is their limited travel range (as I noted in my wish list for Chevy Volt improvements). So if battery costs fall by more than 50% versus 2012 levels, would it make sense to somehow fit a 32 kWh battery in the Volt, giving the car a theoretical 80-mile EV-only range? If charging time could be kept under control, it might make the car more appealing.
Another thing to ponder is the role of government subsidies, via research grants, low-interest loans, and tax credits for EV purchases. In an era where government spending is likely to tighten due to ballooning deficits, some or all of these EV-aiding initiatives may disappear. If a Republican takes the White House, they seem to be even less likely to remain intact. So a 2025 model-year Volt may have a 16 kWh battery that costs GM $5,440 less to purchase than its 2012 model-year ancestor’s battery did, but without other component price reductions, the current $7,500 tax credit that applies to the Volt would not even be matched by battery-cost reductions if the tax credit were to disappear. And that’s assuming the entire $5,440 battery-cost reduction went to the car’s MSRP. That is unlikely to happen. With the Volt selling very slowly today at $40,000 less a $7,500 tax credit (for a net of $32,500), how much better would a similarly-capable $34,560 Volt sell if it lost its tax credit?
The keys to EV success are reducing costs, improving range, and vastly expanding charging infrastructure. Address those three, and eventually they may become more mainstream. Otherwise, this chapter in the electric car’s history may wind up with an ending similar to the category’s earlier chapters.
Download a PDF of the McKinsey report here (4 pages).