Will the cost of electric cars come down? A Q&A session with A123

Astonishing fuel efficiency, reductions in CO2 pollution and the ability to charge your battery at home are just a few of the benefits that electric vehicles offer.

Of course, the only step left between us and a world filled with electric vehicles is actual adoption of EVs by drivers.

Right now, EVs are expensive and recent consumer data shows that 69 percent of consumers consider price the most important factor in purchasing a vehicle. Most of them expect to pay less than $30,000 for an EV — which presents a serious problem, given that the cheaper EVs currently cost around $33,000.

Good Connections: A123 was born out of the research labs of the Massachusetts Institute of Technology.

Government officials, environmentalists, and industry leaders hope that as demand for EVs rises, economies of scale will reduce production costs enough to make them affordable for the average consumer. But critics say the EV industry faces technological barriers that will mean cost reductions may be at least ten years away.

GE Reports caught up with Andy Chu, a vice president at A123 Systems, one of the leading manufacturers of electric car batteries. With a recent investment from GE, A123′s planned production facilities will be able to supply lithium ion batteries for 500,000 plug-in EVs a year by 2013. But the question remains as to whether EV costs will decrease quickly and substantially enough for consumers to buy them.

GER: The electric car’s battery accounts for almost half of the production costs, and can raise the sticker price thousands of dollars. What makes the battery so expensive?

Chu: It’s the cost of the equipment, the materials that go into the battery, labor, and the processing costs. And some costs related to testing. But it’s really dominated by materials, processing, and equipment.

GER: Can any of these factors be reduced with economies of scale?

Chu: The battery separator uses a polymer material, which isn’t very expensive. It’s when you make it into a specific form that it becomes expensive. Over time, as people improve the processing, it will become less and less expensive.

In addition, electronics are already mass-produced commodities, and you can reduce the cost as you increase the production, and design better circuits.

Charged up: A123 Systems, seen above, is also developing smart grid applications, such as utility-scale energy storage,

GER: That leaves labor and the raw materials. Specialized labor costs may well be fixed. But what about critics’ focus on materials?

Chu: For the lithium ion battery, … nickel, cobalt, and manganese [have been cited] as the primary costs. And those are three of the higher cost items. When you look at laptops and cell phone batteries, they use those materials as well.

GER: So demand could keep the costs of those materials high.

Chu: In theory. But A123 uses different materials [in our batteries]. We use a patented nanophosphate technology. Nanophosphate is a form of lithium ion phosphate. And instead of [the very expensive] nickel, manganese, and cobalt, we use iron. And iron is obviously less expensive. Which gives you reason to believe that the iron-based battery will be less expensive in the long term.

GER: These aren’t the only raw materials in high demand, however.

Chu: The cathode material is only a portion of the cost. There are other materials involved, such as copper. Those add to the cost. Still, industry expectation is for far more significant cost reductions.

Learn more in these GE Reports stories:
* “Drive an EV, Slash the CO2”
* “How Far Will Your EV Go? It Depends How Fast You Charge It”
* “The Real State of Electric Vehicles in a Billion-Car World”
* “GE unveils residential WattStation EV charger”
* “GE & Better Place to partner on EV infrastructure”
* “Unveiled: $200M challenge, EV charger, smart monitor”
* “GE teams with Nissan on electric car smart charging”