Why electric cars will become affordable

The holy grail for electric vehicles—affordable batteries—should be a reality by 2020, creating conditions for mass adoption.
Nissan Leaf electric cars are being charged before the start of an electric car rally in Tallinn/ Credits: Reuters

Article at a glance

Electric cars cost too much. The main reason is that the batteries cost too much. Hence electric cars are not yet a mass market proposition.

The battery pack for the Chevrolet Volt costs about $8,000 dollars in the United States; the Nissan Leaf’s larger model about $12,000 dollars. During an economic downturn, this has been bad news for sales.

the good news is that batteries are going to get a whole lot cheaper. By 2020, that Leaf battery pack could cost as little as $4000 dollars, according to consultants McKinsey.

Their report 'Battery technology charges ahead' suggests that prices of lithium-ion battery packs for all-electric vehicles could plummet by two thirds by 2020, below $250 per kilowatt hour. This would make battery-powered cars competitive with even the most advanced internal-combustion engines in the United States.

The US Advanced Battery Consortium collaboration between carmakers Chrysler, Ford and GM is more conservative; it reckons that battery costs need to go below $150 per kilowatt hour to establish a mass market.

Meanwhile the US Department of Energy is trying to accelerate the process. In November 2012, it established a new Innovation Hub for battery research with the goal of cutting costs by 80% by as early as 2017.

Three factors reducing battery prices

The Mckinsey report breaks down the price of battery packs into over 40 underlying drivers and costs. Three key factors are driving down costs.

1) Lower component prices enabled by suppliers increasing productivity and moving to cheaper locations

2) Larger-scale manufacturing of higher volumes using standardized equipment and processes

3) Better cathodes anodes and electrolytes could increase capacity of batteries by 80% to 110% by 2020-2025 In particular, replacing graphite anodes with silicon ones could improve capacity by 30%.

None of this is guaranteed, McKinsey cautions, and a lot will depend on auto manufacturers’ strategies when selecting a portfolio of electric, internal combustion, and other ‘powertrains’ for the future.

Companies making progress

Several battery companies are making technological strides forward.

Envia Systems, a US-based start-up, has built prototype lithium-ion battery cells that store about twice the energy of the best conventional lithium-ion batteries and can be recharged hundreds of times. Korean battery maker LG Chem is using elements of the technology in the Chevrolet Volt electric car.

Some manufacturers are looking at alternatives to lithium-ion. Toyota is developing solid state batteries that replace the heat-sensitive liquid electrolyte (which requires bulky cooling systems) in a lithium-ion battery with a solid material and consequently reduces the battery size and cost. The company is also developing magnesium-ion as a potentially cheaper alternative to lithium.

But there have also been setbacks. American battery maker A123 Systems, which received over $130 million in government grants, went bankrupt.

On the other hand, its technology and assets have been snapped up by a Chinese firm, Wanxiang, that beat off competition from Siemens and NEC, suggesting a healthy appetite for advanced battery systems.

Knock-on effects

Aside from making all-electric vehicles more affordable, competitively-priced batteries will have various knock-on effects, predicts McKinsey.

For instance, they will likely spur manufacturers of internal combustion engines onto more advances in search of greater fuel efficiency.

Meanwhile cheaper electric storage could encourage wider use of distributed energy and so ultimately affect electricity generation. In remote areas, communities are experimenting with battery solutions for storing energy generated by renewable energy.

All of which leads McKinsey to conclude that significantly cheaper batteries could be “one of the biggest disruptions facing the transportation, power, and petroleum sectors over the next decade or more.”

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