McKinsey and Company, a global research firm, has published a study predicting that lithium-ion battery costs are set to drop from between $500-$600 per kilowatt hour now to about $200 per kilowatt hour by 2020 and about $160 per kilowatt hour by 2025. 

The effect that this will have on the auto industry is massive. First, it simply makes electric vehicles cheaper. For instance, the NissanNissanJapan, 1932 > present159 models
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LeafNissan LEAFJapan, 2009 > present4 photos
has a 24kWh battery pack now. Assuming $500 per kilowatt-hour that means its battery pack makes up $12,000 of the cost. If this study is correct and the prices fall, then the same battery pack would cost $4,800. That means for the same price, Nissan could equip the Leaf with a 60kWh battery pack assuming there is the room. 

Second, if the battery cost drops low enough, it will mean including a mild hybrid system that simply acts in parallel to the internal combustion engine can be included on more models. These systems to not provide the major boost in economy found on full hybrids, but they will lower emissions and increase fuel economy. 

McKinsey says the reductions in costs will come from more efficient manufacturing processes, standardization and larger production to spread the cost out. They also predict that battery capacity will increase by between 80% and 110% with new technologies. 

"Ultimately, you've got to get someone excited to buy the vehicle. I think that OEMs or the carmakers or the designers [have to] figure out what form of energy storage is the most exciting to the person who is buying the car. It could be range, could be acceleration, could be onboard storage. We'll have to wait for the market to figure it out,” said one of the study's co-authors John Newman. 

One thing pushing this research, especially in the US where fuel economy is valued over emissions, is the price of oil. As fuel prices increase, the investment in these technologies will be more valuable, and building new battery factories will seem more valuable. 

Mobile phones and tablets are actually pushing some of the development. Their smaller size put an emphasis on battery capacity, and these innovations eventually trickle into automobiles. 

Source: Automotive News