Aaron Saykin is a law clerk in Hodgson Russ’s Business Litigation Practice Group.
According to the Wall Street Journal, the head of a major lithium-ion battery-maker revealed that his company plans to halve the cost of lithium-ion batteries for both hybrid and plug-in electric vehicles within the next six years at the 2013 Battery Show in Novi, Michigan, this month.
We have an internal target to go down by at least a factor of two by 2020,” said Prabhakar Patil, chief executive officer of LG Chem Power Inc., in the Wall Street Journal report. “I am very positive in terms of the slope that I see.”
Battery costs are among the major reasons for the differential in price between traditional automobiles and hybrid or electric vehicles. On the surface, Patel’s revelation sounds like great news for car buyers.
The Journal reports that the cost of the electronics systems that control the batteries is not expected to fall because of a lack of standardization in the auto industry. In other words, while competing automakers may use the same types of lithium-ion batteries, they typically use different, customized systems to operate the batteries. These systems are expensive and time consuming to produce.
The real issue is the cost of the total system,” Brian Kessler, president of Power Solutions, a division of Johnson Controls Inc., said in the Journal.
Kessler concluded the cost of customization of the systems means that, while the price of an electric vehicle is likely to fall, the drop will not be significant, even if companies like LG dramatically cut battery costs. Given that the systems represent part of the overall vehicle development, and competition is a key component in that equation, industry-wide standardization will be difficult to achieve.
Electric car customers concerned about cost have some reason for optimism. According to both the Journal and the Christian Science Monitor, General Motors has decided to develop an electric vehicle designed to rival those of Tesla Motors, whose stock has soared in the last year. Both companies reportedly intend to build vehicles that can drive 200 miles on a single charge, and they will sell the cars for $30,000-$35,000.
However, while Tesla plans to release its new vehicle in 2016, GM vice president Douglas Parks told the Christian Science Monitor the automaker will not release its new electric plug-in car any time soon because of high battery costs.
While the number of Americans driving electric plug-in vehicles has grown steadily in recent years, the vehicles occupy slightly less than four percent of the entire U.S. market share as of August 2013, according to data from the Electric Drive Transportation Association. Patil does not expect an immediate spike in that number.
Demand is slow right now,” Patil told Automotive News. “But we already see increased regulations on CO2 emissions in the European Union, United States, and China on the horizon, three of the biggest markets, and because of that, the demand for lithium ion batteries will increase.”
With an increase in demand, the hope is that ultimately the overall price of hybrid and plug-in electric vehicles using lithium-ion batteries will begin to drop, even with a lack of standardization in the electronics systems operating the batteries. A number of factors help to support this belief, including the fact that the marketplace has already become more accepting of hybrid vehicles (due in no small part to their cost-saving abilities) and that car makers continue in their endeavor to reach their decreased emission mandates from government authorities. It will be interesting to see whether Patil’s prediction comes true over the coming years, which would be a major boon to the industry.
Aaron Saykin is an associate in the Business Litigation Practice at Hodgson Russ LLP. You can reach him at email@example.com.