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As battery prices drop, will electric cars finally catch on?

At the moment, Americans aren’t exactly dashing out to dealerships to buy electric cars. The plug-in Nissan Leaf, which runs 75 miles on a single charge, has seen sales plummet since June 2011. Chevrolet’s Volt, which contains both an electric motor and back-up gasoline engine, has been faring slightly better, but still sold a mere 8,817 units in the first half of this year.

Waiting for battery prices to drop (REBECCA COOK/Reuters)

A big reason for those sluggish sales has been cost. Both electric vehicles and plug-in hybrids promise big savings at the pump, but they also have a hefty initial price tag. The Nissan Leaf has a starting cost of $36,050, while the Volt will set you back about $39,995 (though buyers of both vehicles can qualify for a $7,500 federal tax credit). That’s a lot of money to plunk down upfront. Drivers would have a hard time recouping these extra costs even if gas prices were to double to $6 per gallon, according to the Energy Information Administration. It still makes more financial sense to buy a hybrid, like Toyota’s Prius, or an efficient gas-powered vehicle.
And the biggest reason why electric cars are still so costly is the battery. It’s big, clunky, and pricey. Ford CEO Alan Mulally recently revealed that a battery pack for the all-electric Ford Focus costs somewhere between $12,000 and $15,000 — which means it makes up roughly one-third of the cost of the vehicle. “So you can see,” Mulally told an audience in April, “why the economics are what they are.”
But what if the economics of car batteries changed drastically? New research from analysts at the McKinsey & Company suggests that the price for lithium-ion batteries could fall by as much as two-thirds by 2020. Instead of $600 per kilowatt-hour today, batteries would cost just $200/kwh in 2020 and $150/kwh in 2025. And that, the report suggests, would upend the entire automobile industry.
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