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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

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.

Resources

Comments

Davemart

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.

Treehugger

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

Davemart

@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

Darius

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.

Davemart

@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.

HarveyD

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.

Engineer-Poet

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

Davemart

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.

Roger Pham

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!!!

Roger Pham

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.

HarveyD

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.

Roger Pham

@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.

Arne

@Darius,

LOL Nice piece of PR from the Vauxhall marketing dept.

Arne

@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.

Davemart

@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.

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