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Calculating the cost of electric vehicles

The Renault-Nissan Alliance announced in early 2010 that the company is to invest €160m in a new facility with capacity to manufacture 50,000 lithium-ion battery packs per annum and directly create 200 new jobs at the plant. Construction of the plant is to start this year, with production scheduled for 2012. It is an interesting level of investment.

First, it has to be recognised that the chemistry of lithium-ion batteries is still under development, and that acceptable levels of performance in automotive applications are far from guaranteed. Second, the production systems associated with high-volume automotive applications are also under development in parallel with the design of the battery packs themselves. Both of these characteristics suggest that reductions in the price per kWh, which are vital to ensuring the market success of the technology, are not likely to emerge from the simple application of economies of scale. Indeed, €160m to produce 50,000 units does not compare very favourably with a traditional engine plant.

At the level of cost suggested by Renault-Nissan, if 20% of the new cars built by 2020 have lithium-ion batteries and if 80 million new cars are built, the investment required globally in manufacturing capacity alone would cost in the region of €51bn.

Capability in this area is a matter of concern not just for Renault-Nissan, but also for other major vehicle manufacturers. Just as crucially, given that mobile electric power is one of the defining features of the 21st century, it is a matter of strategic concern for governments around the word - particularly given the huge dominance of the sector by Japan and China at present.

At the level of cost suggested by Renault-Nissan, if 20% of the new cars built by 2020 have lithium-ion batteries and if 80 million new cars are built, the investment required globally in manufacturing capacity alone would cost in the region of €51bn. This is a daunting figure on its own, without then giving consideration to the additional investment that vehicle manufacturers will have to make during this time period while operating at modest levels of profitability.

Little is said now about the billions spent chasing the fuel cell dream, just as now there is scant discussion of the wisdom of pouring billions more into electric vehicles.

The total development cost of the push into electric vehicles (including PHEVs) is surely going to be much higher, with further R&D required alongside new parallel requirements in, for example, recharging infrastructure. Better Place and Dong Energy secured a loan in 2009 for €103m to install an electric vehicle recharging network in Denmark, one of the smallest and most compact of the countries within the European Union. The US government is pouring huge funds into electric vehicle development programmes with Ford, General Motors, Tesla and others. This is not just private investment then, it is also the commitment of scarce public funds.

Only a few years back, the prospect of pure or part-time electric vehicles was viewed with incredulity, and the hydrogen fuel cell appeared to be the heir apparent to the much-derided internal combustion engine. Little is said now about the billions spent chasing the fuel cell dream, just as now there is scant discussion of the wisdom of pouring billions more into electric vehicles. The technology is uncertain, the environmental and sustainability benefits are often marginal, and the acceptance by consumers is far from guaranteed. The automotive industry had better hope that this last great gamble pays off.

Dr Peter Wells is a Reader at Cardiff Business School, where he is a Co-Director of the Centre for Automotive Industry Research and leads the automotive industry research programme within BRASS, also in Cardiff University. Dr Wells is also a director of AutomotiveWorld.com’s sister website AWPresenter.com. He can be contacted on wellspe@cardiff.ac.uk.

The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.