Batteries Included: The Dodgy Economics of the Electric Car

(MoneyWatch)  Will 2010 be the year the electric car finally generates some sales? Or will this eternal car of the future short-circuit again?

Leaf, Chevrolet Volt, Fisker Karma and Tesla Model S are all planning rollouts this year and the buzz is certainly brewing.

Still, there are two big problems. First, it's maddening to estimate how many "hand wavers"--people who wave their hands when asked if they would buy an EV-- will actually buy. Nissan, for instance, estimates 25,000 people are interested in the Leaf, and stops on the company's recent Leaf tour were mobbed. But that's no guarantee of anything. In the '90s, there was strong interest in the General Motors EV-1, the first modern commercial battery car, but only 600 people leased it, killing the electric car for a generation. This is why manufacturers are starting small; Ford anticipates producing only 5,000 or so EVs for the next few years.

And second, there's the question of battery costs. The battery pack costs $10,000 to $15,000 to manufacturers; even after the $7,500 federal tax credit, that makes an EV noticeably more expensive than a conventional car. The compact Volt, for example, is expected to cost around $40,000--a lot of money for a modest little Chevy.

The economic future of the EV, then, comes down to whether battery prices will fall far enough fast enough. And there is hot controversy over question. In a recent report, the Boston Consulting Group concluded that battery costs were "unlikely to drop enough to spark widespread adoption of fully electric vehicles without a major breakthrough in battery technology."

According to BCG, automakers could still be paying $8,000 for relatively small 20-kilowatt-hour packs in 2020; or about $400 per kilowatt. (Today, batteries are $1,000 to $1,200 a kilowatt.) BCG's Xavier Mosquet notes that approximately half of battery costs are based on fixed raw material costs that are unlikely to drop much--and could rise if demand does.

In short, battery technology cannot expect to benefit from the equivalent of Moore's Law. Even at $400 per kilowatt, RIGHT?? Mosquet says for an electric car to justify its added cost in three years, oil would have to go to $350 a barrel.

Also something of a downer is the conclusion by the federal National Research Council that battery costs will be a challenge for the plug-in hybrid battery cars coming from Toyota, Ford, Fisker and others. According to the NRC report, the most realistic estimate is that only 13 million such cars will be on U.S. roads by 2030; that's less than five percent of the fleet.

On the bullish side, there is Felix Kramer of CalCars.org. An ardent advocate of plug-in hybrids, Kramer took exception to the NRC report, claiming it had been prepared by the hydrogen experts who back fuel-cell cars.

The Electrification Coalition, which was founded in 2009 to promote EVs, also took issue with the NRC, saying that its conclusions were based on faulty assumptions and data. The high-profile Coalition, whose members include some utility representatives and Carlos Ghosn, the head of the Renault-Nissan Alliance, estimates that by 2040 three-quarters of "light-duty vehicle miles traveled in the U.S. should be electric miles," reducing U.S. crude oil imports to nothing.

That's optimistic, of course, but then 2040 is a long way off.