Copyright Getty Images, Alex Wong
Manufacturers of electric vehicles, like the Chevrolet Bolt EV pictured here, will benefit as battery costs continue to decline, according to a report.

Battery Cost Plunge Seen Changing Automakers Most in 100 Years

Oct. 11, 2016
The price of lithium-ion battery packs for electric cars has fallen 65% since 2010 and is likely to keep declining, according to a report by Bloomberg New Energy Finance and McKinsey & Co.

Plunging battery costs will drive the auto industry’s biggest change in more than a century, enabling a boom by 2030 in technologies from self-driving electric cars to ride-sharing applications.

The price of lithium-ion battery packs for electric cars has fallen 65% since 2010 and is likely to keep declining, according to a report by Bloomberg New Energy Finance and McKinsey & Co. Consumers may appreciate the biggest impact in the form of cheaper costs for taxis, including substantial reductions for ones run by machines.

“Vehicles and the way they are used will change more in the next two decades than they have in the last 100 years,” said Colin McKerracher, head of advanced transport at BNEF, which will discuss the issue at its conference in London on Tuesday. “The impact on cities will be particularly profound.”

Driving the trend are cheaper batteries, which are the biggest cost in electric cars, along with rapidly improving computer technology that will make self-driving cars a reality on roads within the next decade. Changes already are starting to feed through in the form of an investment boom in ride-hailing applications such as Uber Technologies Inc. and the mushrooming of software developers that will link electric cars to utilities and payment systems.

The coming decade will be a once-in-a-decade opportunity for automotive players."

— Stefan Knupfer, partner at McKinsey’s sustainability and resources productivity practice

Those trends will reduce the cost of running a taxi driven by a human by 3.1% to $2.76 a mile driven by 2025, according to the report. Self-driving taxis may be as cheap as 67 cents a mile to operate. The study counted in the total cost of owning the vehicle, driver’s pay and allowances for overhead and returns for investors.

BNEF estimated that battery costs dropped to $350 a kilowatt-hour last year from $1,000 in 2010. That boosted electric car sales to 448,000 last year from 52,000 six years ago -- and those figures are on track to hit a record 647,000 this year.

The report estimated $11.3 billion was invested in ride-hailing last year, more than double the 2014 level. The result is that automakers including Tesla Motors Inc., Volkswagen AG and General Motors Co. are looking toward reducing battery prices further as a crucial part of their future strategy, and software companies like Google are experimenting on cars that pilot themselves.

The changes will reshape the auto industry, tilting the need for investment away from developing engines and toward perfecting software that drives cars and links them to the web for managing payment and navigation, McKinsey said. Power companies could benefit from a 3% increase in electricity demand in the next 15 years, it said.

“We will see emergence of new business models and service opportunities,” said Surya Ramkumar, a partner at McKinsey who co-leads the consultant’s future of mobility initiative. “As connectivity and autonomy increase, so does the need for sensors and software.”

Battery and hybrid vehicles on the world’s roads may displace as many as 13 million barrels of oil a day by 2040, BNEF forecast this year in a separate report. The costs of lithium-ion batteries, which typically make up about 40% of an electric car’s value, may fall by 16% to 20% with each cumulative doubling of the vehicles’ manufacture, according to the report.

“The coming decade will be a once-in-a-decade opportunity for automotive players,” said Stefan Knupfer, a partner at McKinsey’s sustainability and resources productivity practice.

By Reed Landberg

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