LONDON (Reuters) - The average price of an electric vehicle-grade battery fell 14 percent year-on-year to $689 per kilowatt hour in the first quarter as manufacturing capacity outstripped demand, a report by Bloomberg New Energy Finance said on Tuesday.
Lower battery costs for electric vehicles could improve their commercial uptake, which has been slow. The United States wants to see up to 1 million electric and plug-in hybrids on its roads by the middle of next decade.
To help achieve this goal, the U.S. government has spent over $2 billion under President Obama to underwrite domestic battery production and billions more to finance electric car development to cut U.S. oil imports and reduce pollution.
But electric vehicles such as Mitsubishi Motor Corp.'s iMiEV, Nissan Leaf or Tesla Model S to travel longer distances need to store 16 to 85 kWh at a cost of $11,200 to $34,000, which is around 25 percent of the total cost of the vehicle.
A Tesla car with an 85 kWh battery, for example, has a range of about 300 miles before it needs to recharge.
Battery prices for plug-in hybrid vehicles such as GM's Volt are on average 67 percent higher than those for electric-only vehicles, mainly due to the greater power-to-energy performance required for plug-in hybrid vehicles.
Bloomberg New Energy Finance research shows that the average price of a lithium-ion battery pack for electric vehicles was $689/kWh in the first quarter of this year, down from around $800/kWh a year earlier and 30 percent lower than 2009 levels of over $1000/kWh.
The cost of lithium-ion batteries could drop as low as $150/kWh by 2030 (in 2012 dollars) if current trends continue.
Prices have dropped because production capacity for EV battery packs has exceeded demand due to significant investment on the supply side, while consumer demand for the vehicles has been slow, the report said.
Current production capacity for electric vehicle battery packs outstrips demand by over 10 gigawatt hours, which is equivalent to around 400,000 pure battery electric vehicles, and the gap is on course to widen to 17 GWh by the end of 2013.
In comparison, the total number of electric vehicles sold in 2011 was 43,237, the report said.
"Batteries are one of the biggest drivers of the cost of electric vehicles and hence of their uptake. A sharp decline in price may be unwelcome for battery manufacturers, but it is essential for the long-term health of the sector," said Michael Liebreich, chief executive of Bloomberg New Energy Finance.
The firm launched on Tuesday an index to benchmark the price of lithium-ion batteries used in EVs every quarter.
(Reporting by Nina Chestney, editing by Jane Baird)