Future of Electric Cars - Is There One?

Is There a Future?
By Steve Purdy
TheAutoChannel.com
Detroit Bureau

Visiting today at the Detroit Automotive Press Association was another top analyst group. This one, The Boston Consulting Group, a highly respected international business consultancy (not just focused on automotive but other kinds of businesses as well), came to share their assessment of how electric car battery technology will determine where electric and hybrid-electric cars will fit into the overall market by 2020.

Xavier Mosquet, senior partner, leader of BCG’s Automotive practice and director of the firm’s Detroit office, led the presentation in his charming French accent. His colleague Massimo Russo, (no accent at all) partner and core member of the firm’s Industrial Goods and Operations practices, helped lead the BCG team that advised the Obama administration on the restructurings of GM and Chrysler. Both have lists of accomplishments in their bios that scream credibility.

Despite continuing emphasis from within, and without, the automobile industry, electrification of our automotive lives remains uncertain and the BCG guys came to share their substantial research and analysis with the assembled press. The bottom line: “Cost and technology issues make a mass market for fully electric vehicles unlikely by 2020.”

One measure of the feasibility of electric cars is the cost of the batteries. The oft-stated goal is to get the cost to around $200 to 250/ kilowatt-hour based on costs of the same technology powering small devices. That doesn’t account for the more specialized nature of the larger version in automotive applications where a 10-year life is expected and safety and cooling issues are much different. The BCG report presented today estimates that about the best we can expect, without a major, currently unforeseeable, advancement in battery technology is $360 to 400/kWh. The average cost today for all these forward-looking batteries is nearly $1,000/kWh.

That’s a long way to go.

Remember the GM EV1 electric car of the 1990s? Back then GM was counting on a major advancement in battery technology to make that car economically possible. That breakthrough never came. Even our current lithium-ion configurations, while way better than what powered the EV1, is still not efficient enough to be economically self-sustainable.

Will the value of the battery packs at the end of their automotive life help mitigate the cost of manufacturing?

Not likely, says the BCG team. Whether we consider non-automotive power storage options or reuse for other purposes at the end of the projected 10-years life, they’ll have not enough value to make much difference.

The main consideration for the consumers will be total cost of ownership. Variables will include the price of the battery packs, government incentives, oil prices, electricity prices and many other factors. Without substantial incentives and assuming $100/barrel oil, an EV rated against a comparable internal combustion-powered car in 2020, the break-even time might be in the range of 15 to 19 years in the US. With substantial incentives in western markets, that could be 1 to 5 years. To break even in 3 years you would have to assume: $215/kWh, $7,700 in government incentives, annual driving of less than 40,000, $375/ barrel oil and an increase in gas taxes of 210%.

A mighty unlikely scenario, it seems to me.

What about building batteries in low-labor cost places like Eastern Europe or Asia? Would that help?

Not really. Batteries are not particularly labor-intensive to manufacturer but are very raw material-intensive – and very heavy materials at that – so shipping costs would far outweigh any savings in labor.

The likely market share in 2020 for pure electrics and range-extended hybrids (like the Volt) combined will be around 3 to 5%, predicts BCG.

“The electric-vehicle and lithium-ion battery businesses hold the promise of large potential profit pools for both incumbents and new players,” they conclude, “however, investing in these technologies entails substantial risks . . . The stakes are very high.”