High Battery Costs to Keep Lid on EVs

A new study by The Boston Consulting Group pours cold water on the prospects for electric vehicle proliferation over the next decade, concluding battery costs will remain too high unless a “major breakthrough” in technology is achieved.

Researchers still project fairly healthy demand for electrified vehicles — 26% of the global market, or 14 million units annually in China, Japan, the U.S. and Western Europe by 2020.

But they say only 1.5 million of that total will be fully electric and another 1.5 million range-extending EVs like the upcoming Chevrolet Volt due late this year. The remaining 11 million will be a mix of hybrids.

Meanwhile, the Obama Admin. is urging auto makers to put 1 million EVs on U.S. roads by 2015.

Auto makers won't reach the general battery cost target of $250/kWh unless they can find the silver bullet that “substantially” increases energy storage capacity without significantly boosting the cost of materials or manufacturing, says the study.

“Given current technology options, we see substantial challenges to achieving this goal by 2020,” Xavier Mosquet, who leads BCG's global automotive practice and co-authored the study, says in a statement. “For years, people have been saying that one of the keys to reducing our dependency on fossil fuels is the electrification of the vehicle fleet. The reality is, electric-car batteries are both too expensive and too technologically limited for this to happen in the foreseeable future.”

Lithium-ion batteries will power most EVs in the new decade, BCG says, but auto makers and suppliers are unlikely to cut costs from $1,000-$1,200/kWh today to the $250-$400/kWh level achieved with Li-ion batteries used in consumer electronics.

More is demanded from car batteries in terms of safety and lifespan, the study points out, so “actual costs will likely be higher than what car makers predict.”

BCG's analysis says a reduction of 60%-65% in the price OEMs pay for Li-ion batteries is a more reasonable target for 2020, putting the cost closer to $360-$440/kWh. That would reduce the wholesale cost of a 15-kWh battery pack from about $16,000 to $6,000, with the price to consumers about $8,000-$10,000.

While a significant cut, that still will represent a big part of the vehicle's overall cost.

“(Consumers) will carefully evaluate the cost savings of driving an electric car vs. an (internal-combustion-engine)-based car against the higher up-front cost,” says co-author Massimo Russo. “It will be a complex purchase decision involving an evaluation of operating costs, carbon benefits and potential range limitations, as well as product features.”

How that equation works out will be dependent in part on the cost of fuel and whether governments continue to incentivize EV sales.

A number of other factors also will help to keep the lid on EV sales, researchers say, including limits to energy storage capacity, long recharging times and lack of a recharging infrastructure.

Without a major breakthrough, EV range will be limited to 160-190 miles (250-300 km) in 2020 and the technology to fully recharge batteries in a matter of minutes — equivalent to filling up the tank at the corner fuel station — is unlikely to exist.

Battery-swap schemes, such as the one proposed by Better Place, will require auto makers to agree on common connection and installation standards, a difficult task, BCG says.

The total tab for charging infrastructure will reach $20 billion by 2020, with the U.S. accounting for 40% of that, Europe 30% and the remainder distributed throughout the rest of the world.