PRTM: Operational Gains Can Help Drive Li-ion Cost Reduction Exceeding 50% by 2020, with Plug-in Vehicle Adoption of 10%
A series of recent reports—one from the National Research Council (NRC) (earlier post) and another from the Boston Consulting Group (earlier post)—concluded that an expected continuing high cost of lithium-ion batteries will dampen mass market adoption of plug-in vehicles.
However, Oliver Hazimeh, Director and head of the global e-Mobility Practice at PRTM, a global management consulting firm, suggests that total lithium-ion battery cost reductions exceeding 50% by 2020 are feasible without technology breakthroughs, primarily through operational gains, assuming EV adoption of approximately 10% of new vehicles sold by 2020 to support volume manufacturing. (PRTM contributed to the Electrification Roadmap released last November by the Electrification Coalition. Earlier post.)
Total cost of ownership parity, infrastructure availability and additional government environmental policies will drive plug-in vehicle adoption of more than 10% by 2020, Hazimeh says.
The majority of these battery cost reductions can be achieved through optimizing design and operations across areas including production/manufacturing, supply chain and product development:
Production/Manufacturing Process Optimization: As battery production volumes increase, process optimization will drive improvements in production yield rates. Coupled with scale efficiencies that producers will achieve as they supply packs in volumes exceeding 500,000 units per year and cells in volumes exceeding 200 million units per year, PRTM expects that production process optimization alone will yield a 20-25% reduction in battery costs by 2020, Hazimeh says.
Supply Chain Design: Another example of operational enhancements expected to yield significant improvement in battery costs is in the extended supply chain. Cell manufacturers, for example, will likely see 10-15% cost reductions through pooling material spends and optimizing the design of their supply chains in phases as volumes increase, according to PRTM.
Product Complexity and Design: As more OEMs release an increasing number of electric vehicles into the market, optimization of the design platform will reduce product complexity, which will further reduce battery costs. During this early ramp-up phase, a number of different cell and pack design platforms will emerge due to unique OEM and vehicle requirements. However, Hazimeh says, as de facto standards emerge, battery producers will optimize their design platforms, which will drive additional production and supply chain benefits with the potential of additional cost reductions of up to 10%.
On the product design front, ongoing innovation and improvements in material advancement and battery cell and pack design to increase battery performance and reduce functional cost will yield an additional 10% in cost reduction.
PRTM’s analysis does not factor in additional reductions that could be created by local government manufacturing incentives.
10% of US Drivers Willing to Consider Plug-in Purchase
Separately, a recent survey by Ernst & Young’s Global Automotive Center found that more than 10% of US drivers would consider purchasing a plug-in hybrid or electric vehicle. The report canvassed the views of a thousand American licensed drivers to gauge consumer awareness and interest of plug-in hybrid and electric vehicles in the market.
Based on this sample, this figure would equate to approximately 20 million American drivers who are favorable towards purchasing plug-in hybrid and electric vehicles. The survey is part of Ernst & Young’s advanced vehicle powertrain initiative, which focuses on the business opportunities and issues companies face in the development of alternative transportation solutions.
Mike Hanley, Ernst & Young LLP, Global Automotive Leader, commented that although only 10% of the drivers responded positively to purchasing plug-in hybrid or electric vehicles, for a powertrain technology which is not yet widely available, it is a significant number which should not be ignored.
As the survey suggests, electric vehicles have an opportunity to make a significant entrance into the US public consciousness over the next few years. Even if only a small portion of the 10% of survey respondents who said they would consider a plug-in hybrid or electric vehicle when introduced are serious, there would still be more than enough demand to sell out the 2010 and 2011 production runs of the major and new manufacturers, while buying crucial time to build out infrastructure and increase public awareness.
Some of the biggest challenges highlighted in the survey for advancing the popularity of new powertrain technologies from the niche into the mainstream are access to charging stations, battery driving range and vehicle costs.
While there are clear barriers to consumers fully embracing these technologies, 34% of survey participants said they would subsidize local charging stations, further illustrating that a significant number of drivers recognize the future benefits of plug-in hybrid and electric vehicles. Other key findings of the survey included:
Public awareness of emerging powertrain technologies remains weak across the US.
Not many consumers are willing to embrace the new technology prior to it being well-established in the market.
No other plug-in hybrid and electric vehicle incentive or benefit is considered nearly as important as saving money on fuel.
Among several considerations, access to charging stations, battery driving range and vehicle cost are by far the three most significant consumer concerns.