With gasoline prices staying high, plug-in electric vehicles are much better on an energy cost-per-mile basis than traditional internal combustion engine vehicles. The reality is, though, that when we compare lifecycle ownership costs – EV vs. ICE – the hands-down winner are gasoline-powered cars. When consumers can buy a car that gets over 30 mpg highway for something like $20,000, why pay a lot more for a plug-in? Federal tax credits and state rebates change the numbers, but perception of lifecycle value goes to ICEs. The good news, for plug-in vehicle advocates, is that the cost of lithium ion battery packs used in EVs – where most of the price differential comes from – is expected to seriously change.

We've heard this message before, but a new McKinsey study says that the price of automotive batteries is expected to fall dramatically by the end of the decade and even further by 2025. For example, the battery in the Chevrolet Volt today costs an estimated about $8,000, and that could drop to $2,560 in 2025, assuming no inflation and using a price-per-kilowatt hour measure of energy storage. Nearly a third of the cost reduction is expected to come from improvements in the manufacturing process, standardizing equipment, and reaching economies of scale through spreading fixed costs over higher unit volumes.

Consumers are likely to find EVs more accessible with battery price reduction, meaning more competitive sticker prices. For the McKinsey report authors, this trend could spur advancement in other technologies such as variable valve timing or dual clutch transmissions. Another development to watch is advancing cathode, anode, and electrolyte technology that could raise battery capacity by 80 to 110 percent by 2020-25, while helping to cut battery costs by 40 to 45 percent, according to the study.

The researchers point to other products as an example of what typically happens when a new technology enters the market at a higher price. Increasingly sophisticated energy storage technologies in tablets, smart phones and laptop computers show us a likely scenario for plug-in electric vehicles, the McKinsey researchers say.

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