Ahead of Washington Auto Show, New Study Finds That High Cost of Batteries Will Limit Widespread Adoption of Electric Cars Over the Next Decade

Boston Consulting Group Report Argues That Without a Major Breakthrough, Battery Cost and Technological Challenges Will Make a Mass Market for All-Electric Cars Unlikely by 2020; Market Share of Around 3 Percent Is Forecast

Jan 25, 2010, 11:12 ET from The Boston Consulting Group

WASHINGTON, Jan. 25 /PRNewswire/ -- As policy makers, automotive industry officials, and media converge on the 2010 Washington Auto Show this week, they will be presented with an array of sleek electric cars -- both concepts and production models. But amid all the buzz about fuel efficiency and environmental friendliness, decision makers should bear in mind two issues that will curb demand for these innovative vehicles: the cost and technological limitations of their batteries.

Although electric vehicle (EV) battery costs are expected to fall sharply over the coming decade, they are unlikely to drop enough to spark widespread adoption of fully electric vehicles without a major breakthrough in battery technology, according to a study by The Boston Consulting Group (BCG).

The study, released earlier this month, concludes that the long-term cost target used by many carmakers in planning their future fleets of electric cars—$250 per kilowatt-hour (kWh)—is unlikely to be achieved unless there is a major breakthrough in battery chemistry that substantially increases the energy a battery can store without significantly increasing the cost of either battery materials or the manufacturing process.

"Given current technology options, we see substantial challenges to achieving this goal by 2020," said Xavier Mosquet, Detroit-based leader of BCG's global automotive practice and a coauthor of the study. "For years, people have been saying that one of the keys to reducing our dependency on fossil fuels is the electrification of vehicles. The reality is, electric-car batteries are both too expensive and too technologically limited for this to happen in the foreseeable future."

Most electric cars in the new decade will use lithium-ion batteries, which are lighter and more powerful than the nickel-metal hydride (NiMH) batteries used today in hybrids like the Toyota Prius. Citing the current cost of similar lithium-ion batteries used in consumer electronics (about $250 to $400 per kWh), many car makers hope that the cost of an automotive lithium-ion battery pack will fall from its current price of between $1,000 and 1,200 per kWh to closer to $250-$300 per kWh at scaled production. BCG, however, points out that consumer batteries are simpler than car batteries and must meet significantly less demanding requirements, especially regarding safety and life span. So actual battery costs will likely be higher than what carmakers predict.

Despite this cost challenge, BCG projects steady growth for EVs and their batteries thanks to governmental support and more demanding regulations. Electric cars include mild and full hybrids (like the Honda Insight and 2010 Ford Fusion, respectively), which combine an internal combustion engine (ICE) power train with supplementary electric motors to run the car at idle and low speeds; plug-in hybrids and range-extended electric vehicles (such as the next-generation Prius and General Motors' Chevrolet Volt, respectively), which combine electric motors with a supplementary ICE to run the car after the batteries have been depleted; and fully electric vehicles (like the Mitsubishi i MiEV and upcoming Nissan Leaf), which can only be recharged by plugging into the power grid.

Under the most likely scenario of the industry's evolution, BCG estimates that 26 percent of the 54.5 million new cars sold in 2020 in the major developed markets (China, Japan, the United States, and Western Europe)—or some 14 million cars—will have electric or hybrid power trains. Of those 14 million cars, some 1.5 million will be fully electric, 1.5 million will be range extenders, and 11 million will be a mix of mild and full hybrids. In that same year, the market for EV batteries in those regions will be worth some $25 billion, BCG predicts.

"This burgeoning market will be about triple the size of today's entire lithium-ion-battery market for consumer applications such as laptop computers and cell phones," said Mosquet, noting that the forecast applies to all the components sold to OEMs for battery packs.

The report, titled Batteries for Electric Cars: Challenges, Opportunities and the Outlook to 2020, is a companion piece to a report BCG published in January 2009 on the future of alternative power-train technologies (The Comeback of the Electric Car? How Real, How Soon, and What Must Happen Next). The new report's findings are based on a detailed analysis of existing e-car battery research and interviews with more than 50 battery suppliers, auto OEMs, university researchers, start-up battery-technology companies, and government agencies across Asia, the United States, and Western Europe. The report also draws on the firm's extensive work with auto OEMs and suppliers worldwide.  

To show how battery costs will decline, BCG uses the example of a typical supplier of lithium-nickel-cobalt-aluminum (NCA) batteries—one of the most prominent technologies for automotive applications. BCG's analysis suggests that by 2020, the price that OEMs pay for NCA batteries will decrease by 60 to 65 percent, from current levels of $990–$1,220 per kWh to $360–$440 per kWh. So the cost for a 15-kWh NCA range-extender pack would fall from around $16,000 to about $6,000. The price to consumers will similarly fall, from $1,400–$1,800 per kWh to $570–$700 per kWh—or $8,000–$10,000 for the same pack.

"A number of market surveys suggest that consumers want to break even on the higher purchase price of an electric vehicle in three years," said Massimo Russo, a Boston-based partner and coauthor of the report. According to BCG's analysis, in order for U.S. purchasers of electric cars in 2020 to break even in three years, the market would have to meet either one of the following three hypothetical conditions in full or some combination of them to a lesser degree: an oil price increase from $100 per barrel (BCG's forecast price) to $300 per barrel; a 200 percent increase in gasoline prices caused by higher oil prices, higher taxes, or both; or $7,500 in government incentives available per car purchased, consistent with currently approved EV incentives.  

"While it's unlikely that any of these factors alone will allow buyers to break even in three years, it is possible that some combination of these and related factors might contribute to such a breakeven period," Russo said.

Beyond cost, other key challenges facing the EV battery market are energy storage capacity, charging time, and infrastructure needs. BCG believes that pending a major breakthrough, batteries will continue to limit the driving range of fully electric vehicles to some 150–250 kilometers (about 100–150 miles) between charges. As a result, fully electric vehicles that are as convenient as ICE-based cars—meaning that they can travel 500 kilometers (312 miles) on a single charge and can recharge in a matter of minutes—are unlikely to be available for the mass market by 2020.

"In view of the need for a pervasive infrastructure for charging or swapping batteries, the adoption of fully electric vehicles in 2020 may be limited to specific applications, such as commercial fleets, commuter cars, and cars that are confined to a prescribed range of use," the report concludes.

To request a copy of Batteries for Electric Cars: Challenges, Opportunities, and the Outlook to 2020, or to arrange an interview with one of the authors, please contact Dave Fondiller at +1 212 446 3257 or fondiller.david@bcg.com.

About The Boston Consulting Group

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SOURCE The Boston Consulting Group