Steady Progress on Electric Car BatteriesNothing is more important for the long-term success of electric cars than a steady reduction in the cost of advanced batteries. It's like compound interest; for a while, these small incremental improvements don't seem like much, but after a number of years you've got double what you had before (or the same thing, but at half the price).
The average price of lithium-ion battery packs for electric vehicles fell 14 percent in the past year as production capacity exceeded demand, Bloomberg New Energy Finance said.
Batteries cost $689 a kilowatt-hour in the first quarter of 2012, compared with $800 a year earlier, the London-based research company said today in a statement.
Prices for batteries have dropped 30 percent since 2009, making electric vehicles less expensive.
So while a 14% drop in one year seems a bit high and probably won't be sustained, just for fun, let's look at what this would do to the price of a $10,000 battery pack over a few years:
Year 1: $8,600
Year 2: $7,396
Year 3: $6,360
Year 4: $5,470
Year 5: $4,704
Year 6: $4,045
Year 7: $3,479
And so on... You can easily model what a 8% or 10% drop in prices would look like, but the main point is that compounding is pretty powerful, and if a high enough rate can be maintained, things start to move quickly after a few iterations.