In my last post, I talked about the challenge that low oil prices pose for the electric vehicle industry. The following chart from a 2012 McKinsey battery study shows the key tipping points (click for larger image):
With US gasoline (petrol) prices currently running at $2.5 per gallon, we are falling into the bottom left corner of the chart. In short, the battery price for battery electric vehicles (BEVs in the chart) must plummet to keep EVs in the game. As stated yesterday, Nissan and Tesla are getting their battery costs down to around $300 per kilowatt-hour (kWh), but this is still far above the current sweet spot of $150-$200.
Previously, I also talked about the ‘learning rate’: the rate at which battery prices could fall due to learning from experience manufacturing cost savings for every doubling of battery volume. The industry is in the ‘Catch 22’ position of not being able to crank up volume sufficiently to get down its cost curve since EVs are just too far adrift from internal combustion engine vehicles price-wise to secure volume sales. So what is to be done?
What would break this logjam is if the auto battery industry could make the next technological leap. The problem for batteries is that oil is so damn energy efficient. A litre of gasoline (petrol) can deliver 10 kWh of energy; the Nissan Leaf battery holds, per one litre by volume, only a hundredth of that. As the chart below shows, even the top-of-the-line Tesla battery is far inferior (source: here; click for larger image).
Once the next generation of batteries arrive, however, things will get more interesting. The irony of both traditional vehicles and EVs is that not much energy is actually used to move humans. For current cars, most gasoline is burnt in order to carry a heavy internal combustion energy around; for EVs, the energy is used to transport the battery. Nonetheless, the energy density of gasoline means that traditional cars get the better of EVs in this particular trade-off. But once a new generation of batteries arrives, EVs can push into the top right-hand corner of the chart above. A that point things will change dramatically–a transition that I will tackle in my next post.