One of the biggest barriers to the adoption of electric cars, plug-in hybrids and extended range electric vehicles is cost. The biggest part of that added cost is the battery. In the past, estimates of roughly $1000 per kWh of battery capacity have been thrown around as a way to gauge how much of a premium consumers can expect to pay. Given that it takes roughly 25 kWh to go 100 miles, you can see how this would quickly add up.
Recently, however, the cost of lithium-ion batteries has been dropping more steeply than expected; indicating that the potential in the market to reduce the premium of owning a battery-powered car has been greatly underestimated.
Clearly these prices, purchasing terms, and/or limited range due to battery size will be an impediment to full scale adoption. Until we can get battery prices down to level where the car pays for itself in 5-10 years of not using gasoline and we can pack more battery power in without adding hugely to the cost, the electric car market may be stuck in a rut.
Well, good news. Deutsche Bank has just come out with an analysis of the lithium-ion battery market, and they conclude that battery prices have been dropping much steeper than expected, saying they “believe that the market underestimates the potential for growth in this segment.” Just last November DB issued a report saying that they expected battery prices to decline 25% by 2015 and 50% by 2020. Yet in the new report they say they are already seeing a decline of 30% for orders being placed for the 2011/2012 model year. If this is extrapolated out, we might see declines of 50% by 2015/2016.
Once batteries get to 50% of what they cost right now (about $650/kWh at the end of 2009) then the added cost of a battery becomes relatively minor compared to the cost of an engine and associated exhaust systems. And if we can get to an 80% reduction by 2020, then clearly EVs are the winner at that point.
However, for the early adopters out there, they might feel the burn of buying something that can be bought for half the price 3 years later (any early iPhone owners out there care to weigh in on how this feels?)
You can read the whole DB analysis for yourself below.