At the end of 2010, GM and Nissan each began selling cars that run on electricity most or all the time. The Volt and the Leaf are only the first of dozens of new electric vehicles and plug-in hybrids to come: every major automaker has promised to start selling such cars over the next few years. Toyota, which has led the world in its development of gas-electric hybrid technology, plans next year to introduce a new version of its Prius that will be able to run on electricity alone for short distances. Meanwhile, startups such as Coda Automotive are trying to break into the auto industry with plug-in hybrids and all-electric cars—following the lead of Tesla Motors, whose electric sports car may have helped set the new wave in motion when it was introduced in 2006.

If these cars become popular with buyers, it will mark the beginning of the biggest shift the auto industry has seen for decades: a shift away from an almost exclusive reliance on petroleum and the internal-combustion engine. GM, just emerging from bankruptcy, is counting on the Volt to change its image from purveyor of the Hummer and other large SUVs to leader in innovation and energy efficiency. For its part, Nissan is staking much of its future on electric vehicles; over the next few years it plans to ramp up production to sell hundreds of thousands of them annually, far more than any other automaker.

The new cars are a departure from conventional hybrids, which use batteries mainly to supplement the gasoline engine and store energy recovered from braking. In those cars, the batteries are recharged by a generator that draws its energy not from a wall outlet but from either the gas engine or the regenerative brakes. Battery power alone can take them only short distances at low speeds. In contrast, the new generation of electric cars can run at least tens of miles without gas, and they can be recharged by plugging them in. Some, such as the Leaf, are totally dependent on the battery. Others, such as the Volt, use a combination of batteries and a gasoline engine. Each configuration has its own benefits and problems, but all are limited, ultimately, by one thing: despite many technological advances in recent years, the batteries remain expensive. The fate of the new electric cars will depend above all on automakers’ ability to bring down battery cost, or find ways to engineer around it.

Take the Leaf. Its battery weighs 300 kilograms and is thought to cost as much as $18,000. Even at that considerable size and price, it gives the car a range of just 73 miles. That’s enough for most commutes, but not for longer trips. And the range varies so much with weather and driving conditions that for many drivers it will prove too short even for commuting. If you drive at a steady, low speed on a pleasantly warm day, you could go well over 100 miles. If you’re stuck in traffic on a cold day using the heater, the Leaf might travel less than 60 miles on a charge.

The Price of Batteries
Although costs are uncertain, they will be key to the success of electric cars. (Download PDF)

The GM Volt has different problems. It can travel 35 miles on a charge and keep going for hundreds more using electricity generated by a gasoline engine. But pairing the battery pack with a gas engine and transmission is expensive. The car retails for $41,000—significantly more than the Leaf, which sells for around $32,780 and has a bigger battery pack. Meanwhile, Toyota’s plug-in version of the Prius makes still other trade-offs. It costs thousands of dollars less to build than the Volt. But its electric motor is not designed for traveling much faster than 60 miles per hour without help from the gasoline engine, while the Volt’s can hit 100 miles per hour. The most important difference is that the plug-in Prius has a much smaller battery pack. It stores just a third as much energy as the one in the Volt, so the car’s electric range is comparatively short—just 13 or 14 miles. (Unlike the Leaf but like the Volt, the Prius has a gasoline engine, so it can keep going after its battery is depleted.)

It’s not yet clear which strategy, if any, will yield electric vehicles that sell in high volume. Manufacturers haven’t figured out which combination of price, range, and power consumers will prefer. Demand could also depend on how high gas prices rise and how worried the public gets about greenhouse-gas emissions and dependence on foreign oil. Yet despite such difficult-to-predict variables, it is almost certain that the most successful company will be the one that best understands battery technologies and the innovations that are likely over the next decade.

BATTERY BETS
Carlos Ghosn, the CEO of both Nissan and Renault and one of the biggest proponents of electric vehicles, is betting that manufacturing large numbers of them will lower the cost of batteries enough to make all-electric vehicles competitive with conventional ones. One million cars, says Ghosn, is the point at which the production volume will make batteries affordable, and he hopes to approach that total fairly soon. Nissan and Renault will have global capacity to produce 200,000 electric vehicles by 2012 and half a million by 2014, he predicts.

Automakers don’t disclose exactly how much they’re paying for batteries, but independent studies suggest that the cost is between $600 and $850 per kilowatt-hour. To make the Leaf profitable, Nissan representatives have said, the company plans to push battery costs down to $370 per kilowatt-hour—a level that many experts predict isn’t achievable for a decade, though Nissan seems confident of hitting it sooner. To give the Leaf a range that’s more competitive with that of a gasoline vehicle—say, 300 miles—battery costs would have to come down much more, since the car would need batteries about four times as big as those in the current car. It will take equally aggressive cost reductions to make plug-in hybrids such as the Volt economically viable, according to the U.S. Department of Energy. It estimates that plug-in hybrids with a range of 40 miles won’t be cost-competitive with conventional cars, even when fuel savings are taken into account, until battery costs drop to between $168 and $280 per kilowatt-hour.

Despite Ghosn’s expectations, merely increasing the volume of battery production may not bring prices low enough. The new electric vehicles and plug-in hybrids use lithium-ion batteries, which are more compact and lightweight than the nickel-metal hydride batteries used in previous electric cars and in the conventional hybrid Prius. Many battery experts, including some at GM, argue that high-volume production of lithium-ion batteries for use in laptops and mobile phones has already squeezed out much of the excess cost. What’s more, increasing production enough to meet the needs of the auto industry could drive up the cost of battery materials such as manganese, at least in the short term.

If increasing production volume doesn’t do the trick, the remaining hope is innovation. New kinds of batteries that use cheaper materials and store more energy could greatly reduce costs, mainly by decreasing the number of cells needed to power a car. Researchers are developing several battery technologies in laboratories around the world. Nanostructured silicon electrodes have been used to make prototype batteries that store twice as much energy as conventional lithium-ion batteries. Solid-state batteries replace liquid electrolytes with solid ones that are more compact and less flammable, reducing the need for bulky cooling systems. Another new type of battery, called metal-air, could in theory allow cars to travel 500 miles on a charge, according to the Department of Energy.

Although there’s hope on the horizon, it will take years—in some cases decades—before batteries that look promising in the lab can be installed in production cars. Even if a given battery technology has been used in devices such as mobile phones, qualifying it for the much more demanding environment of automobiles is no easy task. Automakers expect batteries to last at least eight to 10 years without losing more than about 30 percent of their storage capacity. And the batteries must work well not just at room temperature but in the extreme cold of the northern United States and Canada and in the extreme heat of places like Arizona, Nevada, and Southern California. Engineering batteries to withstand these conditions, and the continuous vibration and jolting they have to endure on the road, can take several years. Confirming that the batteries make the grade can take even longer.

Andrew Burke, an expert on electric-vehicle batteries at the University of California, Davis, says that novel lithium battery chemistries are “way in the future”—probably well over a decade off. If he’s right, using smaller batteries, even if that limits electric range, is the best way to move forward with plug-in vehicles while keeping costs low enough for most consumers. As Dan Santini, a senior economist in at the U.S. Department of Energy’s Argonne National Laboratory, puts it: “The costs imply you should make a shorter-range vehicle. That’s the safer way to go.”

REPEATING HISTORY?
The last time major automakers made a big push for electric cars was a little over a decade ago, when GM unveiled its EV1 and Toyota released its electric RAV4 SUV in response to a California mandate on zero-emissions vehicles. Over five years, starting in 1998, Toyota sold or leased just 1,484 of the RAV4s, a dismal showing that was due at least in part to the cost and range limitations of the batteries. The RAV4 cost $42,500 and had a range of around 100 miles.

At about the same time those electric vehicles came out, Toyota started selling its hybrid Prius. It sold for less than half the price of the electric RAV4 and didn’t have its range limitations. The Prius represented a breakthrough in engineering, elegantly solving the problem of how to blend power from an electric motor and a gasoline engine. Since its introduction, in 1997, it has sold in the millions. To this day, Toyota dominates the hybrid market, selling three times as many vehicles as its nearest competitor.

This time around, has Toyota fallen behind in innovation or has it again outwitted its competitors? Its car is coming relatively late, and it has a much shorter electric range than the Volt or the Leaf. But the decision to use a small battery could prove smart. For drivers who have short commutes, the advantages of the plug-in Prius are obvious. Dragan Maksimovic, a professor of electrical, computer, and energy engineering at the University of Colorado, used a test model of the car for his daily 18-to-20-mile trip across Boulder and for a weekend drive to the mountains. In these test drives, he recorded overall fuel efficiency of 92.3 miles per gallon—81 percent better than the mileage of the conventional Prius.

Argonne researchers who analyzed the potential impact of plug-in hybrids on gas consumption nationwide found that while big batteries and longer range yield bigger fuel savings, the cost is disproportionately high. With a vehicle like the plug-in Prius, roughly 25 percent of miles traveled by car in the United States could be powered by electricity. For cars with a 40-mile electric range, that number jumps to 32 percent—promising about one-third more potential fuel savings. But the batteries could cost three times as much.

All-electric vehicles like the Leaf, the researchers argue, will have little impact on fuel consumption because relatively few of them will be sold: consumers will want gasoline backup for longer trips. “The all-electric vehicle has a limited niche and thus a limited ability to save fuel compared to the plug-in hybrid,” Santini says. “The plug-in hybrid with a 20-mile range will be a better bet than the one with 40. A very large fraction of the United States’ population can cost-effectively use these vehicles.”

If manufacturers can make their case to that chunk of the public, sales of cars with limited electric range could surge, says Lew Fulton, a senior transport energy specialist at the International Energy Agency in Paris. Toyota, with its lead in hybrid technology, could do especially well. “There’s going to be a big pile of other manufacturers who are cursing in about three years or so,” Fulton says. “Toyota’s going to come out smelling like roses.”

Whether his prediction proves correct will depend on a number of things. Drivers might be willing to pay more for longer range than researchers at Argonne assume. That would favor the Volt. The market for all-electric cars might be bigger than it was a decade ago—20,000 people have put down $100 deposits on the Leaf, enough potential customers to overwhelm the sales figures for the EV1 and the electric RAV4. Government subsidies could also shift the balance: in the United States, a federal tax credit program gives bigger rebates for plug-in hybrid and electric cars with larger battery packs, shrinking the price difference consumers will see. (The credits will be phased out after the 200,000th car sold by a manufacturer.) Finally, battery costs could come down faster than expected. The Department of Energy is pouring billions into new U.S. battery plants and hundreds of millions into research and development.

Yet with all the uncertainty, the best strategy could be the one that’s the most flexible. And here is where Toyota’s approach might really pay off. If batteries become cheaper, Toyota could expand the battery pack in its plug-in Prius to increase the vehicle’s electric range. And it could adapt the technology to the six new hybrid models it plans to introduce in 2012.

“They all could be plug-ins,” says Justin Ward, manager of the advanced power train program at Toyota’s technical center in Pasadena, California. “Whether that makes sense or not, the market will decide.” And so, he might add, will the batteries.

Peter Fairley is a freelance science writer based in Victoria, British Columbia.