McKinsey analysis indicates Li-ion pack prices could fall to $160/kWh by 2025; EV TCO competitive with combustion engine vehicles
12 July 2012
|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:
Manufacturing at scale. Scale effects and manufacturing productivity improvements represent about one-third of the potential price reductions through 2025.
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.
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.
Russell Hensley, John Newman, and Matt Rogers (2012) Battery technology charges ahead. McKinsey Quarterly
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