Saturday, September 21, 2013

Electric Car Battery Costs Will Continue to Drop

Electric car battery cost: Electric car manufacturers this week celebrated when battery companies announced that the cost of lithium-ion batteries will continue to decline. This is good news for electric car manufacturers like Tesla Motors Inc (NASDAQ:TESLA) and General Motors Company (NYSE:GM), which can expect to reduce costs in the coming years. The price for batteries used to power electric and hybrid vehicles will likely be reduced to half its current value by 2020.
Prabhakar Patil, a chief executive at LG Chem Ltd (KRX:051910) told the Wall Street Journal that, "We have an internal target to go down by at least a factor of two by 2020". The South Korean firm is looking to become one of Tesla’s future battery suppliers.
The main problem for the battery market remains standardization. Brian Kesseler of Johnson Controls, Inc. (NYSE:JCI) explained that although the cost of cells might fall by half, the lack of standardization in the automobile industry makes price reduction the price slower than expected. Since the control systems surrounding the energy source are customized by automakers, overall costs for electric cars are not expected to decline drastically. The cost of the total system remains the real issue, and this can only be dealt with a certain degree of standardization.
Companies such as Tesla Motors and General Motors intend to sell electric cars at $35,000 and $30,000 respectively. Yet in order to achieve this goal, the cost of battery packs must be reduced greatly, since they contribute largely to the overall costs of electric car production.
Although car companies have not disclosed the price of the batteries utilized for their vehicles, estimates show the overall impact to production costs. Nissan Motor Co., Ltd. (TYO:7201)’s Leaf, for example starts at $28,800, although its engineering is basically the same as the firm’s Versa model, which has a price of $13,990. Being able to reduce the cost of the 24 kWh battery pack would allow the firm to reduce the asking price for its Leaf model considerably.
If industry peers were to agree on a certain degree of standardization for electric car batteries, the vehicles could be sold at a more affordable price. However, considering the technological race electric vehicle manufacturers are involved in, cooperation seems highly unlikely and prices expected to remain high form some time.