More Trouble With EV Economics
About a year and a half ago, we looked into what is the single biggest threat to the electrification of the automobile. And what is that threat? Economics. Despite not having to pay for gasoline or some types of maintenance, the current crop of EVs have a severe economic handicap even with generous government subsidies.
Until yesterday, we didn’t have much specific knowledge about the component costs of EVs, and specifically their batteries. But thanks to Ford CEO Alan Mulally’s comments to attendees at a forum on green technology on Monday, we know just how expensive those batteries can be. Not only do current EV economics not make much sense to consumers, but they also don’t have much short term logic for automakers.
According to Mulally (via the Wall Street Journal in two separate articles), the 23 kWh lithium-ion battery packs in the Focus Electric cost between $12,000 and $15,000 each. That’s with Ford’s global purchasing might presumably driving down the price somewhat. Pull out your slide rule (I swear – I really am not so old that I have ever used a slide rule!) and you’ll note that this means a price of between $521 and $652 per kWh for the battery.
The price per kWh, while an critical metric in understanding how much it costs to build an electric vehicle, has been difficult to nail down, due mainly to the reluctance of automakers and suppliers to discuss it. It’s a damned-if-you-do, damned-if-you-don’t issue, really. The high cost of batteries could scare away potential buyers when they fear having to pay more than the car’s future value for a battery replacement if they know the true number, but could also serve to educate the public on the fact that these cars are certainly not profit-generators for automakers.
Good news in all of this is that Mulally’s admission of the Focus Electric’s battery cost is actually on the low end of many analyst estimates, which had pegged Li-Ion prices at $500 to $1,000 per kWh. Other than hints that GM was paying about $600 per kWh for the Volt’s 16 kWh battery, and a single Times of London article (via Autoblog Green) that claimed Nissan was producing the Leaf’s 24 kWh battery for $9,000 (or an impressive $375 per kWh), there isn’t much solid data.
The Federal government has decreed that it would like to see battery pricing fall to around $300 per kWh within the next few years. It appears that technology needs to continue improving for that to occur; according to a report cited by LeftLaneNews, EV battery prices in the first quarter fell about 14 percent from the year-earlier period, from an average of $800 per kWh to $689 per kWh. Assuming that the rate of price reduction remains constant at 14 percent per year, it could be five more years before batteries get to that level. It would mean that the Focus Electric’s battery cost could fall to $6,900 (or it could mean that the car gets a larger-capacity 46 kWh battery that costs as much as today’s batteries but doubles the car’s 76-mile range).
The high cost of batteries (the Focus Electric at $39,200 costs more than twice as much as a base Focus S sedan) means that automakers must decide if they want to try to drive down costs by building a market and getting volumes up, or if they want to devote greater resources into R&D and battery research in order to improve battery technology (and drive down prices) more quickly. Or they could sit on the sidelines and let other companies innovate.
It seems that the third option, sitting on the sidelines, would be done at a company’s peril, however. Every automaker that sells cars in the US is making a strong effort to improve fuel efficiency in advance of the coming 35.5 MPG CAFE requirements, and EV sales help those fleet averages quite a bit (in many cases getting double their normal CAFE credit as an incentive to sell more of those kinds of vehicles). Letting others build a lead in EVs, as nearly everyone did a decade ago when ceding the hybrid market to Toyota, doesn’t seem to be a particularly viable strategy when it’s pretty clear that EVs will be an increasingly important slice of the US auto market in the coming decade.
So the Chrysler/Fiat duo is wise to develop a Fiat 500 EV, even if Sergio Marchionne is telling the truth when he says that the company will lose $10,000 on each one it sells. Fiat is limiting 500 EV volumes to limit its financial exposure, while still hopefully building some expertise in electric propulsion.
At this stage, it doesn’t seem that Sergio will need to fight off 500 EV buyers with a stick, given that even the gasoline 500s are failing to meet sales expectations. Add a range-limited EV and take away the ability to burn gasoline, and you’re probably looking at a white elephant. Ford sells thousands of conventional Focuses each month, but guess how many Focus Electrics it sold in March? Zero. February? Zero also. They did manage to sell about a dozen between December and January, all to fleet customers. To be fair, the Focus Electric is just now beginning any kind of retail sales push; the first retail markets will be California (natch) and New York.
With just 17,425 electric and plug-in vehicles sold during 2011, they need to get cheaper (which the President may help with if he can get his proposed $10,000 point of sale EV rebate approved by Congress in lieu of the $7,500 tax credit) and they need to have improved performance (namely, a more realistic range than 75 miles). Imagine leaving for work every day in your gasoline-powered car with less than a quarter tank of gas. That’s what you are doing with an EV.
If there is any hope of meeting President Obama’s goal of one million EVs on the road by 2015, many stakeholders really need to step up their game. According to the previous link, Edmunds.com predicts 40,000 EV sales in 2012, with the number rising to 250,000 by 2015. Still, that’s only 1.5 percent of the market – or barely a drop in the bucket.
I love – love – the idea of EVs. They need to be better, more practical, and cheaper. If we can get to that point, before lackluster early efforts scare a generation of buyers away from them the way the Oldsmobile diesel did to diesel vehicles in the US a generation ago, then EVs may actually have a chance of taking off. Until then, automakers just need to keep plugging away. (Har har.)
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