Fall in battery costs exceed expectation

Lithium-ion battery manufacturing costs are five years ahead of levels expected by the International Energy Agency (IEA) back in 2011.

An article by Bloomberg View has outlined how the cost of producing batteries that can be made into packs and used in electric vehicles (EV) has fallen much quicker than the IEA anticipated.

As published in Benchmark Magazine’s first issue, the costs of lithium-ion batteries have fallen at an average of 14% a year since 2000 (free download here).

In 2005 batteries cost over $1,000/kWh to produce, whereas today this has fallen to between $300-400/kWh. These cost reductions have come as a result of manufacturing improvements and not from the raw materials of graphite, lithium and cobalt.

Costs however are still too high for mass commercialisation of EVs but many believe with the rise of the battery megafactories and a new era of mass production beckoning for the industry, it will only be 2-3 years before the holy grail of $150/kWh is reached.

A race against oil?

EV battery costs have long been compared with the oil price by industry analysts who consistently cite the price of gasoline at the pump as the major deciding factor for the future of EVs.

Benchmark Mineral Intelligence believes it is a far more complex issue with emerging EVs a fundamentally different technology to gasoline powered cars. Should companies like Tesla Motors succeed in the long term, it will change the way the consumer views these vehicles.

One major recent announcement by Tesla Motors was its remote upgrade of the Model S’ operating system. With one software upgrade, the way the vehicle manages energy output and distribution from the battery is enhanced. Not only does this result in improved performance of the car but also longer battery life.

This is a very important development for the EV space as it holds promise that cars can improve over time and no longer be, in the main, depreciating assets.

While a low gas price in the region of $2.50/gallon will no doubt slow immediate uptake of EVs, prices are likely to rise from the dire situation the oil industry is in today. And with gas prices holding the potential to rebound and battery prices falling, it appears the fundamentals are falling into place for EVs to seriously emerge.