Battery technology charges
ahead
Most experts agree that prices for energy storage will fall in coming
years, but disagree over how far and how quickly. This is an important debate
because a significant drop in battery prices could have wide-ranging effects
across industries and society itself. In particular, cheaper batteries could
enable the broader adoption of electrified vehicles, potentially disrupting the
transportation, power, and petroleum sectors.
To inform the debate, we developed a
detailed, bottom-up “should cost” model that estimates how automotive
lithium-ion battery prices could evolve through 2025. Our analysis indicates
that the price of a complete automotive lithium-ion battery pack could fall
from $500 to $600 per kilowatt hour (kWh) today to about $200 per kWh by 2020
and to about $160 per kWh by 2025. In the United States, with gasoline prices
at or above $3.50 a gallon, automakers that acquire batteries at prices below
$250 per kWh could offer electrified vehicles competitively, on a
total-cost-of-ownership basis, with vehicles powered by advanced
internal-combustion engines .
Of course, the pace of adoption will hinge
on a range of factors in addition to battery prices. Macroeconomic and
regulatory conditions, the performance and reliability of the vehicles, and
customer preferences are important. And the rate at which automakers realize
lower battery prices could vary by three to five years—the length of a
product-development cycle—depending on the investment and power train–portfolio
strategies these companies pursue.
Moreover, the emergence of cheaper
batteries will probably spur further innovation in other technologies, such as
internal-combustion engines. These advances would increase the probability that
the broader economics of transportation will be reshaped over the next
decade—no matter which technology prevails.
The path
to savings
The model we developed, disaggregating the
price of automotive battery packs into more than 40 underlying drivers,3accounts
for expected changes in areas such as materials technology and manufacturing,
as well as overhead costs and margins for various segments of the value chain.
This component-by-component perspective on future battery prices rests on a
foundation of primary research, including interviews with experts in industry,
academia, and government.
Our work suggests that three factors could
accelerate the day when electrified vehicles become more compelling
alternatives—at least on a total-cost-of-ownership basis—to vehicles powered by
internal-combustion engines.
·
Manufacturing at scale. Scale effects and manufacturing productivity
improvements, representing about one-third of the potential price reductions
through 2025, could mostly be captured by 2015. Savings will come largely from
improving manufacturing processes, standardizing equipment, and spreading fixed
costs over higher unit volumes. New plants could therefore be significantly
more productive than those in operation before 2010–11.
·
Lower components prices. Reductions in materials and components prices,
representing about 25 percent of the overall savings opportunity, could mostly
be captured by 2020. Under competitive pressure, EBIT margins could fall to half of today’s 20 to 40 percent.
Component suppliers could reduce their costs dramatically by increasing
manufacturing productivity and moving operations to locations where costs are
optimal.
·
Battery
capacity-boosting technologies. Technical
advances in cathodes, anodes, and electrolytes could increase the capacity of
batteries by 80 to 110 percent by 2020–25. These efforts represent 40 to 45 percent
of the identified price reductions. New battery cathodes that incorporate
layered–layered structures eliminate dead zones and could improve cell capacity by
40 percent. Manufacturers are developing high-capacity silicon anodes that
could increase cell capacity by 30 percent over today’s graphite anodes. And
researchers are developing cathode–electrolyte pairs that could increase cell
voltage to 4.2 volts, from 3.6 volts, by 2025, thus increasing cell capacities
by 17 percent over present-day standards—and potentially by much more.
Many innovations that enable price
reductions for automotive lithium-ion batteries will actually be realized first
in other sectors, particularly consumer electronics, where global demand for
cheaper and better-performing batteries is intense.
Changing
industry dynamics
Automakers will need to balance their
evaluation of the pace and trajectory of declining energy storage prices
against their views on how other power train technologies will mature.
Scenarios featuring a relatively quick decline in battery prices and flat or
rising petroleum prices favor battery-electric-vehicle (BEV) strategies, as the
exhibit indicates. Those anticipating slower declines in battery prices, as
well as increases in petroleum prices, favor plug-in hybrid-electric vehicles
(PHEV) or, perhaps, today’s hybrid-electric vehicles (HEV). Given the length of
product-development cycles, automakers may hedge their risks by investing in a
range of technologies.
Other sectors could face disruptions as
well—particularly electric power and petroleum, where the emergence of
inexpensive energy storage could undermine the profitability of
capital-intensive, long-lived assets. Power companies, for instance, could face
challenges if low-cost battery storage enables the wider use of distributed
generation or if the adoption of electrified-vehicle charging alters patterns of
demand in some markets. Similarly, the race between electrified vehicles and
advanced internal-combustion technology could accelerate the reduction in
demand for transport fuels. Refiners of liquid fuels in developed markets would
have to rethink their product and customer portfolios.
These, of course, are only early indicators of possible
market developments. But given the path to substantially lower battery prices,
which are now coming into view, executives should be considering bold actions
to capitalize on one of the biggest disruptions facing the transportation,
power, and petroleum sectors over the next decade or more.
By Russell Hensley, John Newman, and Matt Rogers
http://www.mckinsey.com/business-functions/sustainability-and-resource-productivity/our-insights/battery-technology-charges-ahead
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