If the cost of lithium-ion batteries doesn't decrease as projected, it could jeopardize the development of advanced hybrid-electric vehicles, such as plug-in hybrids, one market research analyst says.

Future applications of HEV technology will need the greater efficiency and longevity afforded by Li-on batteries, says Joe Iorillo of Freedonia Group Inc., an Ohio-based market research firm. But the cost is prohibitive when compared with nickel-metal-hydride applications.

Battery packs on most HEVs today comprise hundreds of individual NiMH cells, similar to D-cell batteries used in items such as flashlights. Today, one NiMH cell costs about $1, while a Li-ion unit cost just under $3, Iorillo says.

“Costs are really plummeting,” Iorillo tells Ward's. “If battery producers can establish economies of scale like they have for Li-ion batteries for cell phones and laptop computers, that will contribute greatly to bringing costs down.”

In 2000, one Li-ion cell cost $5-$6.

Meanwhile, a Freedonia study suggests the market for Li-ion batteries destined for U.S. HEVs will hit $70 million by 2011.