[ad#post_ad]Electrification of the automobile is well underway, with the first mass produced cars expected to hit the roads later this year.

There have been many speculative reports about whether these cars will catch on and be sold in high volumes over the next few years.

These predictions hinge on cost to consumers, both for the cars and for gas.  Other than for early adopters, plug-in cars must offer better cost of operation than gas-powered cars to win in the marketplace.

The bulk of an electric vehicle's cost, however, is the cost of its lithium-ion batteries.

Reports predicting low EV sales volumes often use $1000 per kwh as the price for lithium-ion batteries, but that is unrealisticly high and should no longer be used.

A new report issued by Deutsche Bank indicates prices that are considerably lower.  They write "we continue to believe that the market underestimates the potential for growth in this segment" and "we’ve noted evidence of steeper than-expected battery price declines which will likely bolster the consumer value proposition and potentially lead to stronger demand than we originally envisioned."

The firm notes the average lithium-ion cell price in 2009 has been $650 per kwh, but claims automakers are already seeing bids for $450 per kwh from battery companies for delivery contracts in the 2011/2012 timeframe.

Furthermore, they predict an additional 25% decline in price over the next 5 years and a 50% decline over the next 10 years along with a doubling of performance over the next 7 years.

Previously LG Chem subsidiary Compact Power's CEO Prabahkar Patil told GM-Volt he expected cell cost to drop up to four-fold in the next 10 years, and said lithium ion cells for non automotive applications is already $350 per kwh.

Furthermore, last March GM vice president Jon Lauckner stated GM is already paying "many hundreds of dollars per kWh," less than $1000 for the Volt's lithium ion cells.

If one considers the Volt has a 16 kwh lithium ion battery, at $450 per kwh its total cell cost would be $7200.

Fuel costs about 2 cents per mile using electricity, and about 10 cents per mile using gas. At $450 per kwh at today's gas prices, after 90,000 miles of electric driving fuel savings will cover the added cost of the battery.

Source ( Deutsche Bank , PDF)