A new study suggests lithium ion vehicle battery costs could drop from around $500-$600 per kilowatt-hour today to $200 per kwh by 2020 and $160 per kwh by 2025.

The research by McKinsey & Company says that with gasoline prices at or above $3.50 per gallon, if batteries were priced below $250 kwh, manufacturers would be able to offer EVs at prices competitive to internal combustion engine counterparts.

However, the study says also EVs adoption will hinge on a number of other factors besides battery pack prices. These include macroeconomic and regulatory aspects, as well as vehicle performance, reliability and consumer preference.

The study also says that nearly 30 percent of cost reductions in battery manufacturing is achievable by 2015 via improved processes and equipment standardization; as well as being able to spread production costs over higher volumes. Therefore, it says, greater efficiency in battery production could spur advances in other vehicle technologies, such as variable valve timing and dual-clutch transmissions in conventional internal combustion powertrains.

John Newman, McKinsey associate partner, who co-authored the study, said that if battery costs remain at where they are today, “it’s a tough proposition to see broad acceptance of EVs.”

That said, advances in manufacturing processes and better productivity, along with improvements in anode, cathode and electrolyte technology, could significantly boost battery capacity; which combined with a reduction in prices could significantly enhance the appeal of EVs, though he stresses manufacturers will need to take lower battery prices into account during the product planning process.

He cites the consumer electronics industry as an example of cost reduction in lithium ion batteries, which in turn has seen reduced prices and far broader appeal for smartphones, tablets and laptop computers, which today are virtually ubiquitous.

McKinsey & Company via Automotive News