Half-Price Electric Vehicle Batteries

Electric vehicles may line the long Electric Avenue at the North American International Auto Show in Detroit this week, but you’re unlikely to see any in your neighborhood–few companies sell them, and fewer still make cars you can drive at highway speeds.

That’s going to start changing in the next couple of years as major automakers roll out electric vehicles and plug-in hybrids (that can commute in all-electric mode, using a gas engine to power longer trips). But because of the high cost of batteries, these cars will be pricey, likely costing several thousand dollars more than comparable gas powered vehicles or requiring separate battery leases on top of the cost of the car.

Because the automotive battery industry is just getting started, there’s also a lot of room for cutting battery costs by improving manufacturing and simplifying designs, according to the international consulting firm PRTM. Based on a two-year survey of battery and auto manufacturers and suppliers, it estimates that by 2020, the cost of batteries will drop 50 percent, even without technical breakthroughs in the batteries themselves. For example, while battery packs are now custom-designed for new electric vehicles, modular designs that can be easily adapted for different models could lead to higher volumes and lower costs says Oliver Hazimeh, the head of the global e-Mobility Practice at PRTM. Manufacturers will also set up manufacturing plants closer to customers, to save on shipping costs. Breakthroughs in materials and other technological advances could bring down costs even more.

With such a drop in battery costs, electric vehicles would be just as affordable as gas-powered cars, if you include the fact that electric cars cost less to operate–recharging them costs a lot less than filling up a gas tank, Hazimeh says. One manufacturer, Tesla Motors, claims you can go 250 miles on $5 of electricity. Going that far on gasoline, in a car that gets 30 mpg, would cost about four times that much.

But here’s the trick–most people don’t calculate how much a vehicle will cost to operate. Convincing them that electric cars are a good deal will require educating consumers, and perhaps inventing some creative financing, Hazimeh says.

Still, it’s going to take some time for electric vehicles and plug-in hybrids to catch on. PRTM estimates that by 2020, these cars will only account for 10 percent of new vehicle sales, an estimate that assumes they will catch on faster than hybrid vehicles have.