A major study by Boston Consulting Group (BCG) has determined that even if EV battery costs drop by a projected 65% by 2020, the economics will still constrain their widespread adoption. It challenges the industry assumption that a $250 per kWh cost for automotive batteries can be achieved by that date. Nevertheless, the report projects that hybrids, plug-ins and pure EVs will make up 26% of new cars sold in major developed markets. Specifically, the study projects 1.5 million EVs, 1.5 million range-extending EVs, and 11 million hybrids produced in 2020. Regarding the manufacturer’s holy grail of $250/kWh batteries:
Given current technology options, we see substantial challenges to achieving this goal by 2020. For years, people have been saying that one of the keys to reducing our dependency on fossil fuels is the electrification of the vehicle fleet. The reality is, electric-car batteries are both too expensive and too technologically limited for this to happen in the foreseeable future.
—Xavier Mosquet, Detroit-based leader of BCG’s global automotive practice and a coauthor of the study
The study takes on the expectations that current EV technology with its range and cost limitations can effectively replace the IC powered car head on,and strongly suggests that EVs will be limited primarily to specific applications:
Without a major breakthrough in battery technologies, 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.
Regarding the possibility of new technologies to dramatically bring down the cost or increase the capacities of batteries, the study put a dampening slant on the likelihood of new battery chemistry being available before the 2020 date: “because none of the players we interviewed expect that batteries based on new chemistries will be available for production on a significant scale by 2020.”
The study envisions costs for a 15-kWh NCA range-extender pack (similar to the Volt’s size pack, but smaller than the Leaf’s) 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.
Even in 2020, consumers will find this price of $8,000 to $10,000 to be a significant part of the vehicle’s overall cost. They will carefully evaluate the cost savings of driving an electric car versus an ICE-based car against the higher up-front cost. It will be a complex purchase decision involving an evaluation of operating costs, carbon benefits, and potential range limitations, as well as product features.
—Massimo Russo, a Boston-based partner and coauthor of the report
The study also takes on the big question as to how the rapidly emerging and developing battery industry will shake out:
The electric-vehicle and lithium-ion battery businesses hold the promise of large potential profit pools for both incumbents and new players; however, investing in these technologies entails substantial risks. It is unclear whether incumbent OEMs and battery manufacturers or new entrants will emerge as winners as the industry matures.
As it stands today, the stage is set for a shakeout among the various battery chemistries, power-train technologies, business models, and even regions. OEMs, suppliers, power companies, and governments will need to work together to establish the right conditions for a large, viable electric-vehicle market to emerge. The stakes are very high.
Our take? This study confirms the three main expectations and predictions we have had for EVs for some time: 1.) They are coming, and in fairly considerable numbers due to the rush by manufacturers to not be left behind and government subsidies; 2.) their batteries will present serious economic challenges to sellers and buyers; and 3.) “conventional” (non-plug-in) hybrids will still be the overwhelming choice of the whole category. And of course, IC-powered cars will still dominate the market.
This study also supports our contention that the most effective EVs in the foreseeable future will be smallish city-oriented vehicles like the Th!nk that don’t require large batteries or create the expectations of longer highway range that can’t be fulfilled.