The cost of batteries in electric vehicles makes up between 35 and 45% of the cost of the vehicle.
And, that’s a huge drawback to making electric cars both affordable and desirable. The lithium-ion battery is not just another component in the consumer electronics supply chain, but a complex industrial product (ref WSJ). Being able to cut the cost of the batteries is the electric car makers’ most urgent challenge. This, in the face of strict emission targets set by the European Union and China – two of the world’s largest auto markets. In the U.S., auto makers will need to continue to worry about the stringent California emissions requirements as well as for the cars sold in Europe and China. There have been various recent attempts to solve that dilemma for the short-term – Ford has signed a platform-sharing deal with Volkswagen and Fiat Chrysler has tried merging with electric-vehicle leader Renault (which has been unsuccessful, to date). There was some promise, during 2018, for corralling the costs of electric car batteries, which fell by 24% while at the same time, manufacturing capacity expanded, cutting unit costs which were also helped by the reduction of the cost of key elements such as cobalt, lithium and nickel. It is generally expected that the cost reductions will continue, but analysts remind us that battery units are a different kind of product and one not prone to the rule of ongoing production costs reductions. One problem is that solar cells are made of abundant silicon, but the batteries also contain volatile commodities. Another issue concerns the East Asian battery-cell manufacturers who are finding that the huge cost of initial investment doesn’t garner them large amounts of profit. Panasonic (for Tesla) has started focusing on improving returns, and Volkswagen has invested in a Swedish battery start-up to ensure a reliable source of supply. Then, of course, there is the fire risk that has been brought on by manufacturers trying to cram more power into less space in the batteries. A WSJ report has said that if the cost of the batteries doesn’t continue to fall, then long-range affordable EVs will remain a pipe dream. Hybrids that use smaller batteries are an option as well as shorter-range EVs, which would require a heavy investment in recharging stations. All-in-all, it looks like the EVs and their batteries face some huge hurdles before there can be long-term expectations for full-scale adoption.