July 13, 2009

Is the Volt battery too expensive? (part 2)

A new Wired article says that electric cars cost too much, because the needed batteries cost $20,000 to $30,000.

The article is correct: Tesla tells us that their 52 KWH battery cost $20,000 wholesale a year ago (for about $400/KWH), so the article's estimate of a $20-$30K price is roughly ok. At that price, batteries are still too expensive for EVs to provide a driving range that is comparable to an ICE vehicle, at a comparable market price.

It's worth noting that this is probably not true if one includes non-market external costs - costs which are real, but not included in the market price), so for those buyers who are willing to pay for non-market costs even though they don't have to, the car pays for itself. That's a relatively small niche market, but it's real. It's also worth noting that the Tesla provides serious sportscar performance at a price that is lower than that of comparable ICE vehicles, so it's actually competitive in that niche.

But, all of the above doesn't matter, because...we don't need pure EVs. PHEVs like the Chevy Volt will eliminate 90% of liquid fuel consumption at a life-cycle cost which is comparable to, or less than, that of an ICE.

Take the Tesla battery and reduce it from 52KWH to 16 KWH, and we get a price of about $6,000. Apply the 8% annual price reduction that Tesla reports seeing in the markets (and which both NIMH and li-ion batteries have been experiencing consistently for the last 10 years) over the period 2008 to 2012 (when the Volt will get to serious volumes) and we get a price of about $4,000. That's about $300/KWH, as predicted here. "I do expect the price will come down to perhaps as low as $200 per kilowatt-hour when mass production begins in 2010 and 2011," she says." They'll use less expensive materials than 1st Gen li-ionbatteries; the larger format is much less expensive (Tesla uses about 7,000 batteries!); and they'll have very, very large production volumes relative to most 1st-gen li-ion. Large production volumes reduce costs very quickly.

The Volt's non-battery components won't cost any more than those of a Prius when manufactured in volume. Toyota is selling it a profit, at about $24K on average. It has an electrical drivetrain, and an ICE drive train. The only real difference in cost between it and a Volt is the battery. If the battery adds $4,000, that's $28K, or the average new ICE vehicle.

Here's what GM's CEO says about the Volt's costs: “My job is to get it out there and get it right the first time but then get it cost-effective so that we can do a huge number,” he said. “If I had to go with my first generation, we couldn’t really pencil a business case. Any new technology is expensive, but if you get to the second or third generation you find that the cost goes way down”.

Now, I think GM is over-pricing the Volt in order to capture the premium that early adopters re willing to pay, as well as the new tax credit. It's worth noting that he Volt was originally planned to sell at about $30K. Then, the federal government passed a $7,500 tax credit aimed at the Volt, and the expected price of the Volt rose to...the high 30's. Similarly, Mitsubishi plans to sell the iMiev for the high 40's in Japan (that's where the $50K price comes from - it's an estimate based on the price in yen, and is before Japanese subsidies - the price in the US is likely to be very different), where tax credits will bring the price back down to...about $30K. I see a pattern.

Didn't GM raise their expected cost long before a $7500 tax credit was passed?

The tax credit was in the planning stages well before that. The credit is clearly customized for the Volt (some people in Washington call it the "Volt-credit", or something like that) - GM was certainly involved in the planning.

Perhaps their earlier $30k price was just hopeful dreaming at an early stage of the design?

Well, a PHEV is no harder to cost out than an ICE. Keep in mind that EVs have been around for 100 years (GM sold electric trucks in large quantities from 1912-1918); that there are probably 100 million electric vehicles in use, albeit not highway legal; that electric motors are ubiquitous and extremely well understood; that GM designed and built the EV-1, which supplied much of the technology of the Volt; that GM has enormous experience in large electric drivetrains in electro-diesel trains; and that electric drivetrains are much simpler than ICEs. Heck, whenever a new generation of Prius came out, GM would tear it down and cost it out, down to every component. They know how to cost these things out.

Perhaps as the design got fleshed out their estimated break-even cost rose above $40k?

Yes, and they said the reasons were: unexpected costs to get high energy efficiency components ready for the 1st gen; and inclusion of the cost of two batteries, just to be safe. Even if you believe that GM really thinks they need to plan for 2 batteries, these aren't costs that will exist for later models.

And hasn't that estimated price gone as high as $48?

Well, Lutz once said in an interview that they might have to charge $48K to make a conventional profit. But again, that's for the 1st gen Volt. And, we have to remember that pricing is an artifact of accounting: GM is spending about $1B on R&D for the Volt: if you allocate that to the first 50K of vehicles, that's $20K per vehicle. If you allocate it to the fist 1M vehicles, it's only $1k.

Keep in mind that an EV is much simpler. It will cost substantially less when produced in volume. Look at the Prius: it costs about $24K, and it has two drivetrains.

No comments: