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McKinsey analysis indicates Li-ion pack prices could fall to $160/kWh by 2025; EV TCO competitive with combustion engine vehicles

12 July 2012

Mckinsey
The interaction of battery and fuel costs will determine the size of the market for electric vehicles. Source: McKinsey, Hensley et al. Click to enlarge.

A new analysis by the consultancy McKinsey & Company 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). These figures represent the price per effective kWh, assuming batteries with 70% depth of discharge (DoD), and include the price of battery cells, battery-management systems, and packaging.

In the US, with gasoline prices at or above $3.50 a gallon, battery prices below $250/kWh could enable electrified vehicles competitive—on a total-cost-of-ownership (TCO) basis—with vehicles powered by advanced internal-combustion engines, according to the analysis by Russell Hensley, John Newman, and Matt Rogers, published in McKinsey Quarterly, the business journal of McKinsey & Company.

The McKinsey authors developed a bottom-up cost model for the analysis that disaggregated the price of automotive battery packs into more than 40 underlying drivers, and accounted for expected changes in areas such as materials technology and manufacturing, as well as overhead costs and margins for various segments of the value chain.

The analysis suggested that three factors could accelerate the decline in Li-ion prices:

  1. Manufacturing at scale. Scale effects and manufacturing productivity improvements represent about one-third of the potential price reductions through 2025.

  2. Lower components prices. Reductions in materials and components prices represent about 25% of the overall savings opportunity. Under competitive pressure, EBIT margins could fall to half of today’s 20 to 40%, according to the consultants.

  3. Battery capacity-boosting technologies. Technical advances in cathodes, anodes, and electrolytes could increase the capacity of batteries by 80–110% by 2020–25, the McKinsey team concluded. These efforts represent 40 to 45% of the identified price reductions.

The team noted that such price-reducing innovations will be realized first in sectors such as consumer electronics, “where global demand for cheaper and better-performing batteries is intense.”

Of course, the pace of adoption will hinge on a range of factors in addition to battery prices. Macroeconomic and regulatory conditions, the performance and reliability of the vehicles, and customer preferences are important. And the rate at which automakers realize lower battery prices could vary by three to five years—the length of a product-development cycle—depending on the investment and power train–portfolio strategies these companies pursue.

Moreover, the emergence of cheaper batteries will probably spur further innovation in other technologies, such as internal-combustion engines. These advances would increase the probability that the broader economics of transportation will be reshaped over the next decade—no matter which technology prevails.

...given the path to substantially lower battery prices, which are now coming into view, 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.

—Hensley et al.

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July 12, 2012 in Batteries, Forecasts, Market Background | Permalink | Comments (33) | TrackBack (0)

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In specifying 'effective kwh' under a 70% DOD, they seem to be saying that the $5-600/kwh they give at present is around $350-420kwh nominal, and they expect prices to drop to a nominal $140kwh by 2020, and to an eventual $112kwh.

Those last two prices are seriously low, lower than I had assumed possible due to the materials costs.

if the price of battery has to fall to 160$/KWh then EV vehicle are a long way out...

@Treehugger.
I am not sure where you get your figure of $160kwh from.
The report indicates that battery cars will have an equal total cost of ownership with batteries at $250kwh, which on the basis of their 70% DOD presumably indicates a nominal price of $175kwh, which they seem to expect in around 2017

Relevant:

News from Europe: UK man trades Leaf for Volt over range anxiety

By Huw Evans

In the United Kingdom, Dan Green (not his real name), decided, after 18 months of ownership that his Nissan Leaf was too stressful and so opted to trade it in for the British version of the Chevy Volt, a Vauxhall Ampera.

Asked why, Green cited the fact that he was tired of running out of charge, which doubled journey times and significantly increased his stress levels since he often worried if he would make it to his destination.

Part of the reason for his decision stems from the fact that in Green’s eyes, development of an EV infrastructure simply hasn’t been rapid enough to support the sales of the cars themselves, which means that the prospect of running out of range was a major concern.

“Although the tow truck drivers were friendly,” Green said, “being taken away on a flatbed truck turns a 1.5 hour journey into a 3.5 hour one. That’s okay if you’re on your own, but it doesn’t impress your passengers and doesn’t help the cause of electric cars.”

He also said that on busy motorways (freeways) or during rush hour, driving slower to maximize range endurance was also particularly stressful, not only irritating other motorists but also proving quite dangerous, especially considering that many drivers travel at speeds of 75-85 mph on motorways in the UK.

As a result, he decided enough was enough and went to a Vauxhall dealer to trade the Leaf in on a new Ampera. “They gave me an offer I couldn’t refuse,” he said, no doubt aided by the fact Green paid in cash, giving him extra bargaining power.

However, despite his new found motoring freedom, thanks to the Ampera’s onboard gasoline generator, Green does say there are some things he misses about the Leaf, namely its onboard CarWings telematics and satellite navigation system. “I really hate the satellite navigation in the Ampera,” he says, though “now I don’t have to worry about plugging in any more,” [getting 250 miles per gallon equivalent] is simply a much more enjoyable and relaxing experience.

@Treehugger:
I now see that you got your $160kwh from the suggested figure for 2025.
Your argument that we in some way have to wait for that does not hold water as they clearly state that TCO will be way lower than the $250 effective kwh needed to equal ICE way before that.

Batteries energy density will be 2x to 4x higher by 2020/2025 and their price (in Asia) will be lower in about the same proportions.

With 500+ Km range and 5 minutes recharges, drivers range anxiety will be past history.

EVs will be very competitive, specially where gasoline and/or other liquid fuels are over $6/gal US which may be the case in about 80+% of the world.

I suspect that EVs are already competitive in much of Europe and Japan, given the fuel prices there.

Fuel in the UK is currently at about £1.33/litre.
I have calculated that at current battery costs it would have to hit about £2/litre for electric vehicles to be cost competitive with equal taxation in respect to fuel.
Of course costs also have to drop to cover the £5,000 subsidy when that is removed.
The insured cost of the 22kwh battery in the Renault Kangoo is £7,500.
That works out to around $550kwh, so McKinsey's estimate of cost comparability at around $250kwh effective battery cost at 70% DOD or $175kwh nominal sounds about right.

With the subsidy in purchase price and no tax on fuel then the Kangoo van should be profitable right now.

It is difficult to say on cars, as it depends which cars you compare it to, and, for instance, you can get a brand new Skoda Citigo for about the price of the battery in the Kangoo.

Surprise surprise, there was no mentioning in the article about the characteristic of the battery as to total number of charge-discharge cycles. At the same cost per kWh of capacity, a battery with 3,000 cycles will cost a lot less (1/3) per kWh of electricity than a battery with 1,000 cycles.

My calculation as posted repeatly here in GCC has been that even at $350-400/kWh, LiFePO4 battery at 2,000- 3,000 cycles is now more than competitive with ICEV at $3.50/gallon US with grid electricity at $0.12/kWh. Energy cost of battery electricity can be 1/2 that of gasoline engine ICEV at the above parameters NOW, ALREADY!!!

Cont. with above:
For a BEV with a LiFePO4 battery that cannot get charged 2,000-3,000 times in 10 years due to less-frequent use, the calendar life issue will not allow the owner to recoup the purchasing cost of the battery, so the cost per kWh of electricity will be much higher.

The solution is to use LiFePO4 battery in a PHEV instead, and use the heck out of it within 5-7 years, with 2000-3000 charging cycles, and replace with a new pack before calendar life issue will become a problem.

Three changes are required before EVs become (highway) competitive and common place:

1. 100+ Kwh lighter (200 Kg) batteries with 2000+ cycles

2. Cheaper EV batteries (below $150 KWh or so)

3. Very quick charge (5-minutes or so) public stations.

Unfortunately, those three basic requirements may not be met before mid-2020's.

Note: (3) will be met before 2020. (1) will be met by 2020 or shortly thereafter. (2) may not be met before 2020/2030.

@Harvey,
Actually, no change at all will be required before PHEV's will become competitive and common place. Just keep gasoline at $3.50/gallon to give GM, Ford, and Toyota et al the incentive to keep coming out with better and better PHEV's with lower cost and more luggage space and lighter. The upcoming Ford Cmax Energi PHEV is quite appealing with lower cost and more luggage space than the pioneering GM Volt. With 20-mi AER, a person can plug-in the car twice a day to realize a 40-mi daily commute.

Work places should provide parkings with e-sockets, analogous to handicap parking requirement mandated by law, that only allows PHEV's to park.

An option for a plug-out would make PHEV's even more appealing in regions of frequent power outages, or for people who like to do camping outdoor, without having to haul and heavy and noisy and polluting portable generator.

Once people will figure out the true savings of a PHEV and the conveniences and advantages, PHEV's sales will take off like i-phones and i-pads. An equivalence of Steve Jobs for the auto industry would make this happen real fast, to make people to rush out and buy a PHEV just for the glamour and conveniences and advantages of owning a PHEV, instead of for any altruistic environmentalism or cost saving.

@Darius,

LOL Nice piece of PR from the Vauxhall marketing dept.

@Engineer-Poet,

You should also take note that electricity prices in Europe are much higher too. The net advantage in energy costs for an EV is roughly the same in Europe as compared to the US.

@Anne:
It depends where in Europe you are talking about.
France has very cheap overnight rates, and in the UK they are pretty reasonable.
OTOH in Germany and Denmark they are very, very high.

@HarveyD,

5 minute fast charges are a result from ICE thinking. It is not how an EV is supposed to be used. It is more like a cell phone: charge overnight, use during the day.

A ~60 kWh battery would be sufficient for a compact car (VW Polo type), giving a usable range of about 250 km. Which is more than enough for most people to complete 350 days of car use per year. (Even then, using your suggested price of $150/kWh, this would lead to a $9000 battery in a car that is now available for a little more than $9000)

For the remaining days, they might require one or a few fast charges. Since this happens only a few times per year, people won't mind if it takes more than 5 minutes. I'd say 3x as long, or 15 minutes, would be very acceptable since most people want and need a short break anyway after driving 250 km.

An important condition that you missed is what I usually call 'ubiquitous fast charging'. People will not accept having to plan their journey from charger to charger. In practice this means that we must have fast chargers at least in every petrol station along the motorway.

And finally, add point 4) to your list: education. An EV will not be as cheap as an ICE vehicle for the forseeable future. But in terms of TCO it can already be an attractive proposition. You have to somehow educate people to attach less value to the sticker price and more to the long term running costs. Looking at how fast average fuel economy drops as soon as the oil price backs down a bit, this may be the hardest challenge of them all.

Anne:  a 3:1 difference in electric prices doesn't change the economic case much compared to the 2:1 difference in fuel prices.

RP:

For a BEV with a LiFePO4 battery that cannot get charged 2,000-3,000 times in 10 years due to less-frequent use, the calendar life issue will not allow the owner to recoup the purchasing cost of the battery, so the cost per kWh of electricity will be much higher.
While I'm a fan of PHEV, I have to mention here that V2G can recover value from the otherwise-wasted cycling capacity and make the economic case even if the car is not driven heavily.

Anne.....I was referring to EVs only. We, like many North Americans, take frequent very long drives and normally stop at mid-day for lunch and gas. We often drive up to 450 Km between fuel/lunch stops. A 350/400 Km compromise would probably be acceptable to most but the current 100 to 150 Km is not enough. Only the new Tesla S (85 Kwh) EV seems to meet highway/long trips requirements and somewhat match ICE vehicles. With regards to charging time, a 5-minute time frame is very possible in the very near future. However, a mid-journey or lunch time stop would allow a slower (30/45 minutes) 50 Kwh recharge. The ideal would be to use very high speed, very efficient, e-trains for long trips but they simply do not exist in North America and may not exist for 100+ more years. We are private vehicle brain washed.

Long range EVs would be ideal in our area because we have a huge Hydro e-power surplus and we only pay $0.065 (Cdn) per Kwh everywhere on the extended network. Our long cold winters is more demanding on the batteries, that's why 100 Kwh is required instead of 85 Kwh.

With regards to EV price, there are two easy very different solutions:

1) a re-enforced plastic body, 2-people, mini, short range (100 Km) EV with 12 Kwh batteries or so could currently be built in Asia for less than $20K and in 2020+ for less than $15K.

2) a long range, highway capable, 5-passenger, high speed, long range (400/500 Km) EV limo with 85/100 Kw batteries or so currently cost $85+K (Tesla S?). Improvement in battery performance and lower mass production cost and more worldwide competition may reduce cost to about $65K by 2020 and $50K or so by 2025/2030.

3. many in-between EVs will be built to try to meet both requirements with one mid-priced unit.

@Harvey,
The long Canadian winter would call for a PHEV instead of a pure BEV, since the extra waste heat from the enagine is free, and the extra ssecurity of having a lot of potential heat energy on boaerd would be highly desirable in case you got trapped in a snow bank or during a snow storm before reacuers can arrive.

Good point RP but we have plenty of low cost clean Hydro e-power and no fossil liquid fuel (yet) and only one very high cost corn ethanol fuel plant.

Cold weather EVs could be equipped with a small, very low cost, very light methane cabin heater as an emergency heat source instead of a complex inefficient ICE?

I'm not against PHEVs but they are a (necessary?) complex, costly, interim solution between HEVs and BEVs. When batteries performance is up 3x to 4x and the price is down to $150/KWh or so, it will cost a lot less to replace the ICE genset with a simple gas heater for emergency cabin heat. This way, we could run on electricity ($0.65/day) + one gallon of liquid gas a year for the emergency cabin heater.

@HarveyD

"We often drive up to 450 Km between fuel/lunch stops."

Up to. Is that marketing speak up-to? Like in "saves up to 50% on petrol?" I am not interested in the fringes, more what average people do. If people regularly driving 450 km between stops are an exception, then we don't have to satisfy them for EV's to become common place, which was your premise in the first place.

You seem to fall in the pitfall of the naysayers: "the EV is a failure until it matches the ICE car in every single detail and can satisfy every niche". Every product is a compromise and people judge the entire package. 15 minutes is good enough. The few times per year that you have to wait 10 or 15 minutes longer will not be a dealbreaker for 90% of the population.

"Only the new Tesla S (85 Kwh) EV seems to meet highway/long trips requirements and somewhat match ICE vehicles. With regards to charging time, a 5-minute time frame is very possible in the very near future"

Define 'very near future'. All very optimistic, but a factor of 5-10 better than today's technology. The problem here is that every battery chemistry is a compromise, a choice of which properties you value most. The 5 most important ones:
price, energy density, power density, cycle life, fast charging ability.

The very high energy density and cheap Tesla battery sacrifices on fast charging ability. It allows charging at 1C, while a 5 minute fast charge requires 12C. That is quite a gap to fill. Yes, batteries that can charge in 5 minutes already exist, but those do not offer the price and energy density necessary for an affordable, long-range EV. Combining it into 1 battery is the challenge.

Nobody's suggested the foolproof options for long-distance travel with an EV yet, despite demos in the 1990's.  Has everyone but me forgotten AC Propulsion's generator trailer?

A trailer is not an attractive option as it limits your cruising speed on the motorway.

According to Dutch traffic regulation, the maximum speed for a vehicle with a trailer on the motorway is 90 km/h. For other European countries, comparable limitations are in effect, although the speed may differ according to local preferences.

If the limit is by regulation, change the regulation.  The AC Propulsion trailer had active steering and could easily have been made stable at any legal speed.

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