A recent study by McKinsey & Co. concluded that steadily increasing oil prices and tightening fuel economy standards will cause the cost of lithium-ion batteries in electric vehicles to drop by more than 70 percent by 2025.
Automobile manufacturers, under pressure to lower fuel economy, will likely place greater emphasis on electric vehicles development, thus pushing innovation in that sector further.
About one-third of the projected price drop would be due to large-scale battery manufacturing, but rapid emergence of new companies and the bleed-over effect of technologies from other electronics companies will also help push prices down.
The report expects lithium-ion battery pack prices to go from roughly $500 per kilowatt hour to $160 per kilowatt hour by 2025.
One of the biggest obstacles to mass-scale migration to electric vehicles is the high cost of batteries, and the U.S. Department of Energy is actively trying to pull prices below $300 per kilowatt hour by 2014.
For comparison, the 23-kilowatt-hour battery today used in Ford's (NYSE: F) Focus Electric costs around $652 per kilowatt hour.
"Cheaper batteries could enable the broader adoption of electrified vehicles, potentially disrupting the transportation, power and petroleum sectors," McKinsey wrote.
Most intriguing is the fact that lithium-ion batteries for consumer electronics operate on cost scales of $300 per kilowatt hour today.
It is tempting to believe that these costs will make their way over to industrial scales of operation, especially as they are lowered further in the electronics sector.
EV Battery Cost Could Drop 70% originally appeared in Energy and Capital. Energy and Capital, a free daily newsletter, offers practical investment analysis in the new energy economy.
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