The EV Conundrum: Uncertain Resale Value Complicates Li-ion Battery Market

By John Gartner

By 2011, thousands of new plug-in hybrid and all-electric vehicles such as the Chevrolet Volt will be filling garages. Lithium ion (Li-ion) battery systems are a major cost component of these vehicles, adding between $8,000 and $18,000 to the price of vehicles, depending on the size of the packs.

This high battery premium is expected to limit the appeal of the vehicles, which may be out of the reach of many consumers. Companies such as Nissan are looking to reduce the initial cost of the vehicles by offering financing for the batteries separate from the vehicles, and startup company Better Place is developing battery subscription services that would charge customers monthly flat fees or fees based on the amount of electricity that flows into the batteries.

The size of consumers’ monthly payments for batteries and electricity could be reduced if the financing companies incorporate the residual value of the batteries at the end of their useful life in vehicles. After repeated recharging, Li-ion batteries slowly lose their ability to store energy, and after 7 to 12 years (depending on how the vehicles are used), the batteries could be resold to utilities to store energy as part of the Smart Grid.

Will a Viable Resale Market Exist?

However, it is an open question if a viable stationary energy resale market will exist once the batteries have served their purpose in vehicles. Li-ion battery makers want EV sales to grow rapidly, and that is unlikely unless the cost of the batteries drops precipitously. Pike Research estimates that – thanks to volume production and improvements in technology and manufacturing – the price of Li-ion batteries will fall from around $1,000 per kilowatt hour (kWh) today to $810 in 2011, and continue dropping to $470 in 2015.  By the time the batteries inside the first Nissan Leafs and Chevrolet Volts are ready to be retired, the cost of new batteries could be less than $400 per kWh.

Will Consumers Balk?

So what would be an appropriate price for a grid services company to pay for a battery that has lost up to 30 percent of its storage capacity, and may only last another five to seven years?  $200 per kWh?  $100? This pricing uncertainty challenges organizations looking to extract that value so that battery financing can be priced attractively to consumers. If the residual value is ignored, consumers may balk. If an overly optimistic value is assumed, company revenues later on may be threatened.

Consumers looking to calculate the value of driving on electricity (including the cost of the batteries) face the same conundrum. According to Pike Research’s new report “Electric Vehicle Batteries,” even when assuming a generous resale value of batteries after seven years, the cost of electric power is at best on par with the cost of gasoline at $3 per gallon. If there is a relatively poor resale market for batteries, EV owners best economic decision would be to keep the batteries as long as they own the vehicle.

John Gartner is a senior analyst with Pike Research, a market research and consulting firm that provides in-depth assessment of global clean technology markets.

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