By Jonathan Marshall

Today’s electric vehicles (EV) are peppy, attractive, efficient, quiet, and clean. And judging by the dozens of EVs now on display at San Francisco’s Electric Vehicle Week, there’s no shortage of models to choose from.

But before EVs can seriously challenge traditional gasoline-powered vehicles in the marketplace, they need a bigger, cheaper “fuel tank.”

When the price of batteries falls roughly in half to below $300 per kilowatt hour (kWh), electrified vehicles will become fully competitive for the first time on total cost of ownership, according to a recent analysis by experts at McKinsey Co.

And at that price, consumers will be able to afford a battery pack big enough to make them comfortable with the vehicle’s range. (Plug-in hybrids like the Chevy Volt already enjoy virtually unlimited range thanks to a built-in gasoline engine.)

But expert opinion is fiercely divided over the prospects of hitting that target anytime soon.

McKinsey predicts that that the price of lithium-ion auto batteries will plummet from about $600 per kWh today to as little as $200 by 2020 and $160 by 2025, a price that could prove truly disruptive to the transportation and petroleum industries.

Dozens of electric vehicles and chargers are on display this week as part of San Francisco’s Electric Vehicle Week. (Photo by David Kligman.)

A few optimists think we might get there even faster. Wolfgang Bernhart, an analyst for Roland Berger Strategy Consultants, asserts that smaller hybrid batteries from Japan and Korea are on track to hit $250 per kWh by 2015. Lux Research, on the other hand, figures the best the industry will do is $400 per kWh by the end of the decade, as limited production quantities fail to achieve mass economies of scale.

Among more extreme pessimists, Tom Murphy, a professor of physics at UC-San Diego, insists that “batteries fall pathetically short” of traditional gasoline as an energy storage medium. And Fred Schlachter, a retired physicist at Lawrence Berkeley National Laboratory, agrees that the high cost and limited storage capacity of today’s batteries “will preclude producing all-electric cars to replace the primary American family car in the foreseeable future.”

The battery industry is rife with claims of new breakthroughs, but many are exciting lab results rather than new commercial products. That makes it tough to judge whose price forecasts to believe.

This June, Massachusetts-based A123 Systems, a major manufacturer of lithium-ion batteries, trumpeted “a game-changing breakthrough” in battery technology that will “significantly reduce or eliminate the need for heating or cooling systems, which is expected to create sizeable new opportunities within the transportation and telecommunications markets, among others.”

One month later, however, the company admitted it only had enough cash on hand to last another four or five months. It recently signed agreements to cede control to China’s largest automotive components manufacturer in exchange for as much as $465 million in new investment, so its technology may yet see the light of day.

Silicon Valley-based Envia Systems claims it is now testing new battery technology that could slash costs to $125 per kWh, and pack more energy than ever before into the same volume to extend vehicle range. One might dismiss that as a marketing boast but GM’s CEO Dan Akerson recently said the battery company has a “better than 50-50 chance” to deliver a “game changer” for the industry.

Another Detroit powerhouse, Ford, is also optimistic. Last month it announced that it plans to introduce five plug-in models this year, double its battery testing capacity, and invest $135 million in electric vehicle engineering.

“We believe that the electrification of vehicles is going to continue as the battery cost comes down, as we move to generate electricity cleanly,” said Ford CEO Alan Mulally this spring.  “We see this as continually growing. This is a long-term journey.”

Email Jonathan Marshall at jonathan.marshall@pge.com.