The economics of lithium-ion battery pricing

The economics of lithium-ion battery pricing

Summary: What will it take to spur mainstream adoption of electric vehicles? New McKinsey & Co. research suggests costs could drop up to 70 percent by 2020, which would make EVs truly competitive to gas-powered options.

TOPICS: Emerging Tech

I've already written two other stories about electric vehicles this week, why not a third?

Today's rant actually is about something with far broader ramifications: pricing for lithium-ion battery technology, which is important not just for electric vehicles but for applications in energy storage and, of course, all the mobile gadgets that most of us cannot live without.

New research from McKinsey & Co. (registration required) takes a deep look at this issue, suggesting that lithium-ion batteries need to cost about $250 per kilowatt-hour in order for automakers to design and manufacture electric vehicles (specifically all-electric passenger sedans) that are priced competitively (from a total cost of ownership perspective) to vehicles that use advanced internal-combustion technologies.

Right now, though, lithium-ion batteries cost from $500 to $600 per kilowatt-hour. That's a lot of ground to cover, but McKinsey believes that the industry can get there if the following things happen:

  • Manufacturing at scale: According to the McKinsey research, this one area could influence up to one-third of the cost reductions needed for a more competitive EV industry. This would come from improved processes, standardizing production equipment and higher unit volumes. Plants built between now and 2015 should be vastly more efficient than those built before 2011, the researchers suggest.
  • Lower component prices: Better prices for the materials that go into lithium-ion batteries along with better decisions about where to produce components could account for savings of about 25 percent, according to McKinsey.
  • Technical advances in capacity: The factor that will fuel better pricing scenarios is innovation, specifically new developments when it comes to cathodes, anodes and electrolytes that help boost capacity. The view into current and anticipated advances suggest that capacity will improve by 80 percent to 110 percent by the 2020 to 2025 timeframe, the McKinsey researchers report. Overall, this will account for 40 percent to 45 percent of the hoped-for price reductions.

Will all this come to pass? And when?

Personally, I think we should look first to how things play out in the consumer electronics world, where the interest in cheaper batteries is far more acute. But the McKinsey analysis underscores, yet again, the increasing relevance of battery technologies for many cleantech applications.


Topic: Emerging Tech

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  • Competitive against gasoline-powered vehicles? Highly unlikely.

    If by competitive, it means the sales price for the vehicles, then, perhaps. But, that still leaves the performance and distance obstacles, which will, no doubt, still favor the gasoline powered vehicles.

    So, for EVs to truly become competitive, they need to have prices which are competitive against regular gas powered vehicles, and they need to be competitive in performance, and they need to be competitive in travel distance. It's highly doubtful that EVs will ever be able to compete effectively against the gasoline engine vehicles.
    • We need to get real

      First we need a working second hand market for EVs.

      I can't afford to buy a brand new car. So I bought a second hand model. The last one costed me £5500 15 years ago. I keep my cars until they fall to pieces.

      So as a EV currently costs ~£25,000 new with government rebates, it'll have to come down to say £7000 second hand before I can afford to think about buying one.

      Can't see that happening before 2020...

      Maybe then there will be at least one public EV recharge point within 20 miles of my town.
      • Second hand? Really? Like, in the used market of EVs?

        The market won't be producing enough first-time buyers to allow for the creation of a good "second-hand" market, especially when, that second hand vehicle is one where the new used EV owner will have to pony up higher expenses for the maintenance of that vehicle, and for repairs, which won't have enough mechanics and shops equipped well-enough to handle that kind of vehicle. So, there won't be too many people in the market to own a second-hand EV, since, it will still be as impractical to own as a used vehicle as it was new.
    • Competitive?

      The newly released TeslaModel S has received many favorable reviews and is very cost competitive with gasoline vehicles in it's price range. Specifically,compare the new BMW Gran Coupe with the Model S Performance. Similarly equipped versions have comparable prices (after incentives on the Tesla) while the Model S offers greater performance (it's a second faster 0-60), is quieter (compare reviews), and has more cool stuff (retractable door handles, touch screen controls, jump-seats, and a stereo that turns up to "11")
      • In its price range? That's quite meaningless, and tangential.

        To compete, it's gotta be in the market for everyone, and not just those that can afford what amounts to a luxury item at a high price. Otherwise, your suggestion is a non-starter in the field of competition.

        If the idea is to make something for the "high-end" crowd, or the well-off, then, of course, your Tesla is "competitive". But, in a world where governments and environmentalists keep pushing for cost effective and environment friendly vehicles, then, EVs are, and will be, complete failures.
  • What about Lithium availability?

    As long as China is hoarding rare-earth metals (and Lithium), the price for Li-chemistry batteries will NEVER come down to the $250/kW level. The problem is that you can get a cheap lead acid deep cycle battery @ for not much over $120. That is $100/
    • Eh?

      Surely it is America which is hoarding these minerals?

      China is at least mining and selling the stuff!

      Hence you see most hard drives (they have rare metals inside) sold by the East.