Lithium-ion Battery to Overtake Gasoline by 2025?
A significant portion of an electric vehicle’s cost is attributed to its battery. Lithium-ion batteries, while significantly more efficient than other types of batteries isn’t really that cheap. Price places lithium-ion batteries at a significant disadvantage over gasoline, which is still a lot more energy dense while being cheaper.
Would this trend continue forever? Well, one study says that this price trend is about to change in just a little more than a decade. A study that was conducted by McKinsey & Co suggests that lithium-ion batteries may become economically on par with gasoline by 2025.
The report was concluded by the consulting firm just recently, after analyzing the potential cost lowering factors and the economic interaction of fossil fuel prices to lithium-ion battery prices. As of today, overall lithium-ion battery prices (including packaging and battery management) are still placed at $500-600 per kilowatt-hour. Their study predicts that this would eventually drop by $200 in 2020, and would eventually hit only $160 by 2025.
The three cost lowering factors that were announced in this study were manufacturing rate, component price reduction, and technologies that improve battery capacities. The manufacturing factor is explained by the fact that increased manufacturing productivity through the years should constitute to a third of the total price reduction. The component factor gets 25%, and simply points to the price drop that would happen as EBIT margins fall under competitive pressure. The last battery factor gets the largest portion of the price reduction rate, and it is the technical advancements that are projected to double battery capacities in the future.
Gasoline prices almost always play around $3.5 per gallon. According to their calculations, this would mean that lithium-ion batteries could already be quite economically competitive as it hits prices below $250. From the data given by McKinsey & Co, we could probably optimistically guess that this transition might just happen around 5 to 7 years from now.
Imagine, an electric vehicle that would be economically competitive to a gas guzzler in just a little more than a decade. We would be technically left with no reason whatsoever to embrace a vehicle that uses a fuel that is not only harmful to the environment, but is also quickly nearing its depletion. And since the batteries are projected to become twice as strong, the issue of “range anxiety” might just be a thing of the past. This might be just wishful thinking, but if we can improve the green factor of grid power technology, we would probably have to start looking at old gasoline powered cars as quaint and vintage cars of the earlier industrial eras.
But while the announcement is certainly good news for the electric vehicle industry, it is more likely that the electronics consumer industry would be the first ones to receive the price drop’s blessings. Not only would our smartphones, laptops and tablets get more powerful and last longer, they would also become exponentially cheaper than they are today.
On a last note, their study also stated that if this scenario does happen (and we really hope that it would), it would enable a worldwide revolution of EV technology around the world, possibly disrupting other areas of the automotive industry, particularly the ones that have to do with fossil fuels.
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