Automotive battery prices falling faster than expected

New reports (PDF) indicate (via GM-Volt) that the cost of lithium-ion batteries for automotive applications (like the Tesla Roadster, Chevy Volt and Nissan Leaf) are coming down faster than was previously expected. At a recent conference, A123 stated that they were negotiating contracts for automotive Li-Ion batteries for 2012 delivery at under $400/kWh, a reduction of almost 40% over 2009 prices ($650/kWh) in only 3 years. If the trend holds, a report published in-part by the National Academy of Sciences would be way off since it estimates the $400/kWh price point wont be hit until 2020, 8 years later.

Elon Musk (Tesla CEO) postulated a “weak Moore’s law” for Li-Ion batteries, that the price/performance ratio will increase by 8% per year, or 9 years to double. The price/performance ratio is the ratio between the price per kWh of the battery pack and the amount of energy the battery can store. If current batteries can store 140Wh/kg and cost $500/kWh, an 8% improvement means either the storage goes up to 150Wh/kg, the price goes down to $460/kWh, or somewhere in between (145Wh/kg and $480/kWh). A Tesla battery pack would go from $35,000 (53kWh at $650/kWh in 2009) to $24,000 ($400/kWh in 2014), a reduction of about 10% of the entire price of the car over approximately 5 years. Combined with other cost saving methods, the next stage of the Tesla evaluation – the Model S – starts to look feasible. Its still not going to be the most affordable car, however significant progress is being made.

The cost per battery pack can be broken into two parts – the batteries themselves and the pack. The pack costs can be trimmed considerably with mass-manufacturing. Instead of hand assembling each battery pack and set of battery modules (a series of cells), semi-automated assembly can increase the throughput of the teams assembling dramatically while keeping the same number of people around, reducing the amount of employee-hours spent per battery pack.

The cell costs don’t come down as easily. This is the decidedly slower part of the electrification of vehicles. Following the 8% rule, automotive battery packs due in 2009 cost approximately $650/kWh. In 2014 this cost is about $430, and by 2017, the cost is $330/kWh, and by 2020 $260/kWh. Following the more agressive price decreases noted above, prices in 2017 would be $235/kWh, and by 2020 $172/kWh.

So by 2020, a Volt-style battery would cost $4,200, or about the cost of a new engine (a rebuilt one can be had for less). This assumes that other battery performance parameters do not improve – rather the Volt still requires a 16kWh battery and only uses 8.8kWh of the battery pack. If the current estimates of what battery specifications will be by 2020 (2,500W/kg, 250Wh/kg, 2,000 cycles and 4,000 recharges at 70%DoD) the Volt would be able to have its pack size reduced to 12.5kWh (50kg, 110kW), thus reducing costs further to $3,250 for the battery pack, and the total price premium of the E-REV system would be approximately $5,500. Factoring that cost over 5 years is $1,100 per year in savings needed over gasoline, which is achievable when factoring in savings in electricity costs over gasoline (approximately 9c or 11c/mile savings depending on cost of electricity), reduced maintenance costs ($150/yr for oil changes, etc) and reduced variability of fuel costs – my electric company needs a regulatory body’s approval to change the price of energy, the local gas station chain can add 10 or 15c to the price of gas over a holiday weekend because they feel like sticking it to us.

By 2030, barring any new technology that would leapfrog Li-Ion on price and performance, battery prices would reach $110/kWh, and total costs would be equivalent to a Prius premium today.

Over the long term, E-REVs are workable from a consumer finance standpoint. Initially, subsidies, longer warranties and extended payback periods will be needed to entice the consumer to buy in to the electrification of vehicles. If we can manage to stick with it for the next 5-7 years, it will take off and the nation can start to wave good-bye to oil and petroleum for their in-city commutes, and we’ll all breathe easier with less smog.

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