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Cheaper electric car rides on battery manufacturing

Battery technology is evolving rapidly but cost reduction in electric cars will be driven by supply chain expansion in the next few years, argues research company PRTM.

Rather than a technology breakthrough, the route to cheaper electric cars is high-volume manufacturing of lithium ion batteries, according to an electric vehicle expert.

Management consulting company PRTM on Monday released a statement arguing that people are underestimating the projected demand of electric vehicles when it comes to battery capacity.

The companies and countries that can ramp up operations for both battery pack and battery cell fabrication are the ones that will profit as electric cars become cost competitive with gasoline-powered cars in the next six to eight years, said Oliver Hazimeh, the director of PRTM's Global E-Mobility practice.

"Increasingly, this is not a localized game. There is a strategic global race going on," said Hazimeh.

China, in particular, is "completely committed to EVs" in part because projected demand for first-time car buyers will cause a spike in demand for oil, Hazimeh said.

The U.S. federal government last August announced a $2.4 billion investment in battery manufacturing, which was matched by private companies. That has led some industry watchers to wonder if there's a bubble in electric car components. But PRTM argues that plug-in vehicle volumes will ramp up significantly in 2016 in Europe and 2018 in the U.S. as costs approach gas-only cars.

"The game will be won by quickly ramping up to scale and driving the costs down," Hazimeh said. "Smaller start-ups will have a hard time if they cannot scale up quickly."

Right now, the lithium ion battery manufacturing is dominated by Asian companies, with more from China emerging. Hazimeh said that manufacturing battery cells, rather than battery pack assembly, is more strategic in the long run.

Technology improvements will play a role in bringing the cost of energy storage down, but PRTM projects that will not come into play until 2020. Between now and then, battery costs will go down by about half based on supply chain expansion, with plug-in vehicles representing about 10 percent of new cars sales, the company projects.

In the meantime, high costs for batteries mean that electric vehicles, such as the Nissan Leaf and Chevy Volt, will be aimed mainly at early adopters, who may enjoy the acceleration of electric motors, and fleet operators, which tend to buy based on total cost of ownership rather than purchase price. Hazimeh estimates that the cost of the 24 kilowatt-hour battery in the Leaf costs between $16,000 and $18,000.