Electric-Car Battery Costs To Decline To $200/kWh In 2020, McKinsey Says

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Tesla Motors - Model S lithium-ion battery pack

Tesla Motors - Model S lithium-ion battery pack

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It's not for no reason that electric cars are more expensive to buy than their fossil-fueled counterparts.

If you wanted to point the finger of blame squarely at one thing, you'd likely be pointing it at batteries.

At the moment, a typical lithium-ion battery pack costs around $500-$600 per kilowatt-hour. That means the 24 kWh pack in a 2012 Nissan Leaf may have cost between $12,000-$14,400 to manufacture--a significant proportion of the vehicle's cost.

Analysts have long been predicting that the cost of batteries would fall, but the latest study from McKinsey suggests it could fall quite dramatically by the end of the decade, and at an even faster rate before 2025.

Cheaper Leafs, Volts

By 2020, the cost per kilowatt-hour could have dropped down to $200, making the cost of that Leaf battery pack only $4,800. By 2025, that cost will have fallen further, to only $160 per kWh. That would bring the manufacturing cost of the pack in a Nissan Leaf down to $3,840--up to $10,000 less than it is today.

Automotive News provides another comparison, using the Chevrolet Volt. At $500 per kWh, a Volt battery costs $8,000. In 2025? Just $2,560, not including inflation.

The McKinsey report suggests that nearly 30 percent of the cost reductions will come from improved manufacturing processes, and being able to spread the cost over higher production volumes.

Another 25 percent of the reduction would be down to lower components prices, and 40-45 percent of the cost reduction would come from advancements in anode, cathode and electrolyte technology--which would also bring about increases in battery capacity.

Who knows for sure?

Other recent studies have offered different variations on the cost of Li-ion batteries. One suggested that the batteries are already at $250 per kWh, and Pike Research has only given a hazy 2020 estimate of between $225 and $500 per kWh.

An interesting consequence of electric cars becoming more accessible to consumers--due to lower prices--could be greater advancements in non-electric vehicles in order to compete. John Newman, a co-author of the McKinsey report, suggests we could see advancements in areas such as variable valve timing and dual-clutch transmissions.

Russell Hensley, another author of the report, says that carmakers will have to take lower battery prices into account when developing their product plans--ensuring the future electric vehicles are positioned correctly in the market. It may also spur some manufacturers into expanding their electric portfolios.

Newman adds that the advancements may not even come from within the auto industry, but will first be seen in the consumer electronics industry.

So keep your eyes on the iPhones, as it could well be an indicator of where electric cars are going...

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