Will Electric Vehicles Be More Affordable?

 Rapid Decline in Electric Vehicles Battery Prices Spark Greater Demand for Electric Vehicles

In today’s fuel-powered world, electric vehicles (EVs) are widely viewed as game-changers. By challenging the convention set forth by fuel-powered engines through the use of lithium-ion EV batteries, EVs present consumers with an environment-friendly option for transport. Much remains to be said of EVs, however, as consumers point out the high costs of EV batteries as their main concern against switching away from fuel power.

Rapid price decline for Electric Vehicles batteries takes place

Despite concerns over costs, a providential change looms over the future of EVs. Researchers from the Stockholm Environment Institute (SEI) monitored the decline in global prices for Electric Vehicles batteries – the decrease has been dramatic from an average of $1,000 per kilowatt hour (kWh) in 2007 to $450 per kWh in 2014. Considering the wealth of changes that took place during said period, it behooves EV manufacturers to provide their offerings towards making them more acceptable for mainstream use.

Further studies provide consistency to the trend of declining EV battery prices. An analysis released by Bloomberg New Energy Finance (BNEF) revealed that EV battery prices in 2015 fell by 35% from 2014; if such a trend continues, EVs can cost the same as their fuel-powered equivalents by 2022. The same analysis expounded that EVs will cost within the region of $22,000 and account for 35% of new vehicle sales in 2040, assuming the continuity of the trend.

Said findings conclusively validate the constant decline in EV prices, which is associated with a salient set of factors. Improvements in battery chemistry, innovations in manufacturing processes, growing economies of scale, and greater competitiveness in pricing all led to the consistency in price reductions. A closer look at the EV battery value chain from the 2015 report of the Clean Energy Manufacturing Analysis Center (CEMAC) provides a clearer understanding on how such processes become more simplified over time:

Here are the steps:

• Raw Materials
• Processed Materials
• Electrodes
• Cells
• Battery Pack

Specialized facilities house each of the steps in manufacturing EV batteries. Mining and purification of raw materials such as lithium and graphite form the first step. Processed materials, in turn, are used to make electrodes, which are essential ingredients of battery cells. Both electrodes and cells are usually processed within one facility. Another facility handles the assembly of battery packs, making them ready for distribution.

Lower Electric Vehicles prices follow suit

The continuity of said value chain, amid innovations produced by ongoing research and development (R&D) efforts, directly influenced the growth of economies of scale within EV battery manufacturers. Such has a straightforward effect on EV prices, as seen in two of the latest EVs in 2016 – the Tesla Model 3 and the Chevrolet Bolt, both of which are priced within the $30,000-$35,000 range.

The relatively low prices of both the Model 3 and the Bolt is coherent with the constant decrease in EV battery prices, considering that both Tesla and General Motors (Chevrolet’s parent company) have to consider issues on profitability. Considering that SEI set a threshold price for EV batteries at $150 per kWh to ensure cost-competitiveness against fuel-powered vehicles, profitability thus stands as a key issue of Electric Vehicles manufacturers attempting to penetrate the mainstream market. Thus, without risking the production of white elephants, both Tesla and General Motors secured lucrative sourcing deals with major industry players in battery technology.

Tesla’s partnership with Panasonic for its in-house battery manufacturing led the company to produce EV batteries that are as low as $190 per kWh a pack. Such was initially dismissed by UBS researchers as outlandish, citing their own analysis stating that Tesla’s batteries are priced $260 per kWh a pack and that the Model 3 should thus be priced $15,000 more than its $35,000 price to become profitable. Nonetheless, Tesla VP for Investor Relations Jeff Evanson himself confirmed that the company’s batteries come at $190 per kWh, which adds credence to other components of the Model 3 wrongly assumed in UBS’ estimates. Furthermore, the Model 3’s higher efficiency rating than its more expensive older sibling, the Model S, proves that Tesla has invested on significant efforts to compete effectively against the fuel-powered mainstream.

GM disclosed its price estimates for its cells at $145 per kWh purchased from LG Chem, another company specializing in battery manufacturing. With estimates for battery packs tagged within the region of $215 per kWh, GM does not put profitability at bay in pricing the Bolt at around the $30,000 mark once it releases its 2017 calendar-year units. Moreover, GM forecasted that cell prices are set to fall to $100 per kWh by 2021 – a positive forecast that entails lower prices for EVs not only from GM, but also from Tesla and other EV manufacturers.

Looming spikes in demand for EVs

In light of the price drops for EV batteries, demand for EVs are expected to increase. The case of Tesla and GM – two major automotive brands with significant influence in the global EV market, shows that innovations in EV battery manufacturing can help bring down EV prices. Add to that the appeal of EVs as environment-friendly alternatives to fuel-powered vehicles, and more consumers are set to make the switch as time progresses. Such has been validated by the 2015 report of the United Nations Environment Programme (UNEP), which noted that EV sales in 2015 increased to 59% from 2014. The Argonne National Library, in its 2015 report, supplements that trend by finding that Electric Vehicles will constitute 58% of all light vehicles in 2030, assuming that the current trend on declining EV battery prices continues.

With EV batteries set for further innovation, and with economies of scale of the likes of Tesla and GM more likely to grow as they continue production, more consumers will prefer Electric Vehicles over fuel-powered automobiles. The high premium on efficiency and environmental sustainability makes Electric Vehicles stand out from their fuel-powered counterparts, thus making lower EV battery prices an aspect that will truly add to their appeal. Furthermore, as the world shifts away from fuel power, what with the thinning state of the global oil supply, Electric Vehicles are duty-bound to enter into mainstream use at the proper time, as automobile manufacturers intensify their focus on sustainable development.