Lithium Ion Battery: Struggles to Reach Economies of Scale

Written by Jillian Friesen, GEI Associate

Econintersect: With the changing view towards more environmentally Picture-24-e1342142574614 friendly energy permeating the American concious, more and more people are choosing to purchase electric vehicles equipped with lithium ion batteries. The price of storing energy, has remained at a fairly high cost when compared to the current rates of petroleum and other fossil fuels.

In a recently published article, McKinsey&Company brought the issue of energy storage cost in comparison to fossil fuel costs to light. Their findings ascertained that by the year 2020, the price of lithium-ion batteries should decrease enough to make the market for battery operated vehicles more cost competitive compared to those utilizing traditional internal combustion technology.

According to McKinsey&Company,

“In the United States, with gasoline prices at or above $3.50 a gallon, automakers that acquire batteries at prices below $250 per kWh could offer electrified vehicles competitively, on a total-cost-of-ownership basis, with vehicles powered by advanced internal-combustion engines (exhibit).”¹

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Currently the price per kilowatt hour for a full lithium-ion battery set ranges from $500-600. By the year 2020, the prices should fall in the range of $200 per kWh, plus or minus $50. These are exciting findings, indicating that owning battery operated vehicles should become more pragmatic options.

The cost of R&D when it comes to developing a new battery is exceptionally high. Once out of the manufacturing process, the cost of putting a lithium-ion battery is “estimated to be around $8,000 to $18,000 per vehicle.”²These manufacturing costs should decrease in the near future. Many of these cost saving mechanisms occur over many different types of industry.

Standardizing equipment, higher volumes of production and improvements in manufacturing technology are just to name a few. According to the study,

“Scale effects and manufacturing productivity improvements, representing about one-third of the potential price reductions through 2025, could mostly be captured by 2015.”³

The lowering cost of component input prices would be another cost saving apparatus representing roughly 25% of the overall savings. The third way costs are going to be cut is through the development of new research and technologies. According to the McKinsey Report:

“Technical advances in cathodes, anodes, and electrolytes could increase the capacity of batteries by 80 to 110 percent by 2020–25.”³

If these advances were to be made, the out put of the lithium ion battery would increase by roughly 40%, representing a huge benefit to the consumer.

Just like every other emerging industry, the lithium-ion battery is going to experience some setbacks along with its successes. In a sense, the lithium-ion battery industry needs to develop its sealegs and overcome many barriers basic start ups face. Learning how to tango with the big players and the ability for the manufacturers of the batteries as well as the automanufacturers to persuade consumers will determine their success in achieving economies of scale.

In a sense, be ready to merge the “green” with the “mean”