According to a recent McKinsey study, the price of automotive lithium-ion batteries is expected to drop by thousands of dollars by the end of the decade – a change which could substantially increase the number of full electric and hybrid cars on the road. The researchers behind the McKinsey study developed a “should-cost” model which suggests that the price of a lithium-ion battery pack could drop from today’s cost of about $500 to $600 per kilowatt hour to about $200 by 2020 and $160 by 2025.

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So how does this cost decrease translate into the final pricing of a full battery pack? The 2012 Chevy Volt is powered by a 16 kilowatt battery pack that costs about $8,000 based on today’s battery prices. If prices drop to $160 a kilowatt hour, the Volt’s battery would only cost around $2,500, which is a significant drop.

John Newman, an associate McKinsey partner in San Francisco, co-authored the report with McKinsey partner Russell Hensley in Detroit and Matt Rogers, director of McKinsey’s San Francisco office. According to the report, most of the cost reductions will come from improvements in manufacturing processes, which by 2015 could make the battery plants more productive. The report also states that “lower components prices” could account for around 25 percent of the price reduction, and much of the savings could be captured by 2020.

Low battery prices will ultimately make electric cars more accessible for consumers, but Newman recently told the Automotive News, “Ultimately, you’ve got to get someone excited to buy the vehicle. I think that OEMs or the carmakers or the designers [have to] figure out what form of energy storage is the most exciting to the person who is buying the car,” Newman said. “It could be range, could be acceleration, could be onboard storage. We’ll have to wait for the market to figure it out.”

Overall this is great news that in the not too distant future electric powered vehicles will become cheaper with stronger batteries that will increase their adoption in the marketplace.

+ McKinsey Quarterly

Via Automotive News