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Batteries: A chicken and egg tale

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On the road to mass adoption of electric vehicles, there is one pothole that looms particularly large: battery prices.

Right now, every kilowatt-hour (kWh) of storage in the battery packs used in most EVs costs about $600. Ford has said it pays anywhere from $12,000 to $15,000 for its Focus Electric’s lithium-ion battery pack, about 30% to 42% of the car's price in the US.

This would be bad news for the burgeoning EV auto industry – were it not also true that battery costs were projected to drop significantly in coming years.

Betting on falling prices

According to a recent report by the Electrification Coalition, a US-based  lobby group, EV battery prices were as high as $1,000/kWh in 2008, but were expected to decline to just $300 to $325/kWh by 2020. The coalition is not alone in its favourable projections. Consulting firm McKinsey and Company released a battery technology report last year, in which the report’s authors said they expected the cost to be as low as $200/kWh in 2020, falling to about $160/kWh in 2025.

Here’s what that means for the consumer. If the average price of gasoline in the US hovered around its current $3.50/gallon, and battery costs were currently $250/kWh, electric vehicles would be highly cost-competitive with internal combustion engines over the total lifetime of the vehicle. Lifetime costs include things like the price of powering an electric vehicle compared to a gasoline-powered one.

The US Department of Energy estimates that it costs about three times less to power a purely  electric vehicle than it does to run an internal-combustion model, noting the stability of electricity costs relative to gasoline – the average cost of a so-called "e-gallon" being just $1.18.

How projections become reality

Predicting the fall of battery prices is one thing, but the EV industry needs high rates of consumer adoption and new technology to see those cost savings materialise.

On the technology front, a vanguard innovation being researched is lithium-air batteries, which could store four times the amount of energy per pound than current lithium-ion cells. The principle involves drawing electricity from metal as it reacts with oxygen. IBM, Toyota, and MIT are just a few of the bodies researching the technology, but it is anything but a proven solution for EVs.

Innovation will surely be a driver, but it is just one path toward savings. The McKinsey report names lower component prices and the scaling of mass battery production as other price-reduction drivers. But those two factors depend, in part, on consumers buying EVs.

Auto manufacturers have been doing their part to get motorists on the electric bandwagon. At the beginning of 2013, Nissan slashed $6,500 from the price of its purely electric Leaf, and in May, Honda reduced the lease price of its Fit EV by more than $100 per month. In July, Ford sliced $4,000 from the price of its Focus Electric, and on 29 July, BMW unveiled its i3 EV, priced from a reasonable $42,000.

About 113,000 electric vehicles were sold worldwide in 2012 – a marked increase over the 45,000 sold in 2011 but only a fraction of the 81.8m vehicles sold in 2012 over all. Though EV sales are low compared to total vehicle sales, adoption rates indicate demand exists for the battery-electrics. Adding more charging stations worldwide may help goose EV sales, and IHS Automotive projects EV charging stations will number 11.7m worldwide by 2020 – up from just 135,000 in 2011.

Ultimately, it will take a combination of consumer demand, battery innovation and charging infrastructure for battery costs to fall. Only then would conditions be optimal for electrics to create the paradigm shift in transport that their makers and advocates have long promised.

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