Report: EV Battery Prices Will Drop 70% by 2025

Lithium-ion batteries for electric and hybrid cars currently cost $500-$600 per kWh. But prices are likely to drop to about $200 by 2020 and $160 by 2025, according to McKinsey & Co.

The research firm bases its predictions on a bottom-up "should cost" model. It estimates that, with gasoline prices at $3.50 per gallon or higher in the U.S., EVs could be cost competitive if battery prices fall below $250 per kWh.

McKinsey says it considered more than 40 factors that influence the price of EV battery packs. It cites three primary areas for cost reduction: production efficiencies, lower component prices and improved battery capacity.

The analysis predicts that higher-volume production could contribute one-third of the projected cost reduction by 2025, most of it by 2015. Another 25% savings will come from lower-cost materials and components.

McKinsey estimates that advances in anodes, cathodes and electrolytes could boost battery capacity 80%-110% by 2020-2025. Such improvement would contribute 40%-45% of the anticipated cost savings for battery systems, according to the analysis.

Click here to read the McKinsey report.