By the end of the decade, the price of automotive lithium ion batteries is predicted to significantly decline, according to a McKinsey study. The price is expected to fall even further by 2025. The consulting firm said that in this "should cost" model that was developed by researchers, the price for a "complete automotive lithium ion battery pack" may fall from $500 to $600 per kilowatt hour presently to about $200 by 2020 and $160 by 2025.
A kilowatt hour measures energy storage. The lower prices would definitely have an impact on the cost of the Chevrolet Volt's 16 kilowatt hour battery pack. Let’s take for instance that kilowatt hour costs $500, the Volt battery could be priced at $8,000 but if a kilowatt hour costs $160, the same battery may be priced at $2,560 in 2025 (if there’s no inflation).
The report said that the price could drop almost 30% by 2015. This would stem from improvements in manufacturing processes, standardizing equipment and distributing fixed costs over higher unit volumes. The report also stated that as a result, future battery plants may be more productive than those made before 2010-2011.
John Newman, an associate McKinsey partner in San Francisco, said that lower battery prices could make electric vehicles more accessible to consumers and may hasten the advancement in other technologies like variable valve timing or dual clutch transmissions. Newman is the co-author of the report with McKinsey partner Russell Hensley in Detroit and Matt Rogers, who serves as the director of McKinsey's San Francisco office.
Furthermore, Newman said that the electric vehicle industry is feeling the growing pains that other emerging industries would also be experiencing. He said that consumer demand will originally be small but if battery costs are maintained at the current amount, it would be a “tough proposition" for electric vehicles to be accepted.