The general assumption with electric cars is that “economies of scale” will bring down the cost of batteries, and thus make them more affordable. After all, when battery packs cost the company $10,000 to $15,000, it’s hard to sell the EV for less than $30,000.
The idea with economies of scale is that as companies build more battery vehicles, the cost of the packs will come down dramatically. But a new Boston Consulting Group report says that isn’t likely — at least in the near term. The firm thinks that car companies will still be paying $8,000 for relatively small 20-kilowatt-hour packs in 2020, and that their target of $250 per kilowatt is impractical. Right now, batteries cost between $1,000 and $1,200 per kilowatt.
According to Xavier Mosquet, the Detroit-based leader of Boston Consulting Group’s global automotive practice, $400 per kilowatt is more likely. And since about half of battery costs are fixed — not sensitive to quantity discounts — he said huge breakthroughs are unlikely without radical changes in materials.
High prices like that make it harder for EVs to compete with gas cars on cost. According to Mosquet, oil would have to go to $350 a barrel (it’s now around $82) for payback in three years.
Things aren’t quite as dire as that appears. Automakers have begun to lop $7,500 off the prices they quote for their cars because that’s the amount of federal tax credit available when you buy an EV. With the tax credit, EVs pay for themselves in three years with oil at $100 a barrel. That’s not too far from where we are now.
The problem, Mosquet says, is that we’re talking about EVs being 10 to 20 percent of the car population. Will the U.S. government continue to provide that large a credit over that many vehicles?
Remember, even though it’s a bad year, we still moved more than 10 million cars, and 20 percent of that is 2 million. So we’re talking $15 billion a year to maintain the subsidy. The incentive is currently capped at 200,000 per manufacturer, so it would have to be extended dramatically — and continue for many years into the future. By contrast, a federal subsidy on hybrid cars was capped at 60,000 per manufacturer, so it’s already all-but-disappeared for popular makes.
Despite all these hurdles, Boston Consulting still predicts that 26 percent of new cars sold in 2020 in the major developed markets (China, Japan, the U.S., and Western Europe) — 14 million vehicles in total — will have electric or hybrid powertrains. Hybrids will be the biggest part of that mix at 11 million. Only 1.5 million will be fully electric, the company said. Meanwhile, the electric battery market will reach $25 billion. “The burgeoning market will be about triple the size of today’s entire lithium-ion battery market for consumer applications such as laptop computers and cell phones,” says Mosquet.
Contrary to other more expansive visions, Boston Consulting says battery cars in 2020 may be concentrated — used as part of commercial fleets and as commuter cars.