The paper breaks the price of battery packs down into more than 40 underlying drivers, and suggests that three factors could accelerate the decline in Li-ion prices.

By now, the typical cost curve of a new technology is familiar to most of us, as we’ve seen the prices of computers, flat-screen TVs, tablets and other consumer electronics follow downward trajectories, driven by economies of scale and technological improvements. Many observers think the same will happen with EVs, and this week a new report by the consultancy McKinsey & Company offered some numerical analysis to support this view.

McKinsey’s analysis indicates that the price of a complete automotive lithium-ion battery pack could fall from the current $500–$600/kWh to about $200/kWh by 2020, and to about $160/kWh by 2025 (in real dollars, indexed to 2011). The authors predict that, in the US, with gas prices at or above $3.50 a gallon, battery prices below $250/kWh could make EVs competitive (on a total-cost-of-ownership basis) with advanced ICE vehicles.

The paper breaks the price of battery packs down into more than 40 underlying drivers, and suggests that three factors could accelerate the decline in Li-ion prices: manufacturing at scale, lower component prices, and technical advances that could increase the capacity of batteries by 80-110% by 2020-25.

The team predicted that price-reducing innovations will be realized first in the consumer electronics sector, and that the pace of EV adoption will also depend on macroeconomic and regulatory conditions. The conclusion: “executives should be considering bold actions to capitalize on one of the biggest disruptions facing the transportation, power, and petroleum sectors over the next decade or more.”

Source: McKinsey & Company via Green Car Congress