Published: June 15, 2021 Source Marketwatch By
Adoption will be determined by more than just batteries
Battery prices have fallen dramatically over the past 15 years, outpacing many past predictions, and electric vehicle sales are accelerating exponentially. Governments and businesses are announcing commitments to an all-electric future.
Will this rapid pace continue?
My work as director of the Vehicle Electrification Group at Carnegie Mellon University in Pittsburgh suggests that we need to be careful about extrapolating past EV trends into the future because future challenges look fundamentally different.
Take battery cost, which is among the most significant barriers to EV adoption. What caused prices to drop so fast in recent years, and will these same drivers continue to deliver?
There have been at least four big drivers bringing down battery prices in recent years: First, economies of scale drove early reductions in battery costs, but now they are all but exhausted, and we shouldn’t expect big factories or growing demand alone to make EV batteries much cheaper. Second, production process improvements have also driven cost reductions, but even a utopian production process can’t push battery prices below material costs. Third, prices can temporarily dip below costs when firms leverage subsidies, take temporary hits to establish a foothold in the market, or cross-subsidize to comply with regulation, but prices can’t stay below costs for long. Finally, innovation has driven costs down in the past, and innovation is our primary remaining lever for driving down costs in the future.
We should remain skeptical about predictions of EV adoption if they are just based on past trends.
There have been enormous efforts to innovate lithium-ion battery technologies as well as to move beyond Li-ion batteries, and these efforts will continue. Most of the benefits so far have come from hundreds of incremental improvements, such as changing the cathode chemistry to use less cobalt, improving electrode transport properties to realize thicker electrodes, or optimizing packaging. For example, while Tesla TSLA, has focused so far on cylindrical cells like those used in many consumer electronics, in the long run prismatic or pouch-style cell packaging will offer lower costs.
Going forward, incremental engineering improvements like these will continue to reduce battery costs — but without the kind of help from economies of scale, process optimization and strategic pricing that drove prices down in the past. Sensitivity to commodity prices like lithium and cobalt, for which markets are not as transparent and liquid as for many other metals, adds to the uncertainty.
The biggest future cost reductions may come from a breakthrough beyond lithium-ion technology, but these are difficult to predict. Watch for innovations like lithium-metal cathodes, silicon-graphite composite anodes, and polymer electrolytes. But a breakthrough beyond lithium-ion technologies faces even greater challenges as well as long lead times in the automotive industry, so don’t expect them in your car in the next decade.
In the bigger picture, even if we hit all of our battery targets, cheap batteries aren’t enough, on their own, to realize widespread adoption of EVs.
Electric vehicles today represent about 3% of new car sales globally (driven by China), and those early adopters and enthusiasts are systematically different from mainstream consumers, who aren’t as driven by environmental and technology-oriented lifestyles and who have other priorities and constraints.
For example, about half of U.S. vehicles lack a reserved off-street parking space at an owned residence where a charger could be installed. Adoption may be more difficult for renters as well as for residents of dense cities who already struggle with parking logistics and aren’t enthusiastic about adding charging logistics to their daily tasks.
Early EV adopters and enthusiasts are systematically different from mainstream consumers.
So cost parity just won’t be enough, on its own, to drive mainstream adoption to high levels, and even if we had a perfect EV today that everyone wanted, it would still take over a decade to transition the fleet. A spike in gas prices could accelerate EV adoption, but a spike in battery material prices, like cobalt, could slow adoption.
With all of this said, it’s safe to say that batteries and battery production processes will continue to improve, battery prices will come down, and electric vehicles will become more competitive. Research and innovation will be a key driver of these trends going forward, and I am optimistic about what researchers will achieve. We should, however, remain skeptical about predictions of exactly how fast battery costs will drop and how quickly EVs will be adopted in the future if these predictions are just based on past trends. We do well to remember that past performance is no guarantee of future results.
Jeremy Michalek is a professor of engineering and public policy as well as director of the Vehicle Electrification Group at Carnegie Mellon University in Pittsburgh. Follow the group on Twitter @CMUVEG