2012-07-11

Why There's Hope For Widespread Electric Vehicle Adoption By 2020

I have just one word for you: batteries.

Anyone watching the electric vehicle industry’s progress over the past few years has probably been dismayed at the glacial adoption rate of EVs. It’s still rare to spot an EV on the road, even in major metropolitan areas. But take heart: even if we don’t reach some sort of gas price tipping point for EV adoption, research from McKinsey suggests that the price of lithium-ion batteries could plunge by 2020, creating a space for the EV market to flourish.

The report, released in McKinsey Quarterly, says that the price of a lithium-ion vehicle battery pack could plunge from $500 to $600 per kilowatt hour today to about $200 per kWh by 2020 and $160 per kWh by 2025 due to major technological advances. If gas prices in the U.S. stay at or above $3.50 per gallon, EVs could compete on total cost of ownership with gasoline-powered vehicles (with batteries at $250 per kWh).

A boost in battery innovation will likely come from the consumer technology industry, where lithium-ion batteries will continue to power more and more of the gadgets we use every day. "[The industry] will benefit from tailwinds provided by other industries," explains John Newman, an associate principal at McKinsey.

There are a handful of macroeconomic factors at play that will influence lithium-ion battery prices, including energy prices (which could plunge because of new gasoline extraction technologies), regulations for fuel economy and safety in the auto industry, technology, and demand.

Even if gasoline prices drop, upcoming fuel efficiency and tailpipe limit regulations will make EVs attractive to automakers. "From a regulatory standpoint, we don’t need vehicles this fuel efficient but we will need them as we move toward and beyond 2020," says Russell Hensley, a principal at McKinsey. "Historically in the automobile industry, if you have a regulation, then that is the primary driver of innovation and technology uptake."

Nevertheless, oil prices will impact whether automakers favor battery electric vehicles (BEV), plug-in hybrids, or even today’s hybrid electric vehicles. The report explains: "Scenarios featuring a relatively quick decline in battery prices and flat or rising petroleum prices favor battery-electric-vehicle (BEV) strategies, as the exhibit indicates. Those anticipating slower declines in battery prices, as well as increases in petroleum prices, favor plug-in hybrid electric vehicles (PHEV) or, perhaps, today’s hybrid-electric vehicles (HEV)."

If McKinsey is correct and lithium-ion battery prices drop, power companies will have to start seriously thinking about how a glut in EVs will affect the power grid (a recent report from MIT lists all the things that will need to happen to make sure the grid can handle EVs, solar, and wind power). And if we’re lucky, automakers will start looking beyond lithium-ion batteries in the coming decades to better-performing lithium-air batteries.

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6 Comments

  • luke warmwater

    The problem I see is...yes there will be a point where gas get to expensive....EV's and Hybrid's make gains. hen demand for gas comes down, then the price of gas comes down. EV's and Hybrid's sales slow to a crawl. This is a cycle that will be repeated until EV's become cheaper and easier to swap batteries. Why is there not a simple battery swap station that you can go to. Stay in your car and have a secondary battery swapped in a minute or two.  I should have the dimensions of a AA or AAA battery, but way bigger, just for fun.

    It is the same for the solar industry. Solar helps keep Nat Gas demand down, which means lower Nat Gas prices. It makes it tougher for solar to compete with lower Nat Gas prices.

  • Wize Adz

    "EV's and Hybrid's make gains."

    EVs have gains to make, but the Prius is Toyota's 3rd best selling car.  There are well over 2 million of them on the road.  While that's a small fraction of the cars on the road, it's really good for any individual model of car -- especially one with such "unique" looks.

  • Henry Biggs

    What is really needed is for the automakers to devise between them a standard for battery packs that can simply and quickly be removed when discharged and swapped for freshly charged packs so the current gas station network can be replaced with a future battery station network, allowing an EV to be 'refuelled' in almost the same time it takes to fill a tank of fuel

  • Guest

    Li-air sounds more than interesting, but you still have to convince a buying public, spanning innumerable tastes, vehicular desires and viewpoints, when it comes to going all electric. Will 8 years all we need to see this change?

  • Wize Adz

    Who says the EV needs to be all things to all people?

    Wouldn't having half of the commuter cars in the USA being EVs save enough fuel to change the world?