The Long View Electric Cars

Global Autos and Technology
March 17, 2014
Max Warburton (Senior Analyst) • max.warburton@bernstein.com • +65-6230-4651
Mark C. Newman (Senior Analyst) • mark.newman@bernstein.com • +852-2918-5753
Robin Zhu • robin.zhu@bernstein.com • +852-2918-5733
Bo Wen • bo.wen@bernstein.com • +852-2918-5718
Abbas Ali Quettawala, ACA • abbas.quettawala@bernstein.com • +44-207-170-0535
Soojin Park • soojin.park@bernstein.com • +852-2918-5702
The Long View: Electric Vehicles - Tesla & The Falling Costs
Of Batteries - Are We Still Underestimating The Potential?
Please see the Disclosure Appendix for the ratings and price targets of the companies covered in this report.
Highlights
We would admit to being long standing skeptics about the potential of Electric Vehicles (EVs). We
published a 440 page detailed study of alternative powertrains in 2011, in cooperation with technical
consultancy Ricardo PLC, that concluded it would be very difficult for EVs to become cost competitive with
conventional cars due to the high costs of battery pack production. Recent developments suggest we may
have been too bearish.
While most mainstream EVs have been sales failures so far (Nissan Leaf, Renault Zoe etc.) due to high
costs and poor usability, the success of Tesla has clearly disturbed the status quo. While Tesla's product is
very high-end and niche – and sells for emotional rather than rational factors – the company is also making
extraordinary claims about its low battery costs – and its ability to move down market. If such claims are
correct, then battery costs may be on track to fall sufficiently to make mainstream EVs cost competitive.
In recent months we have spoken with a number of EV specialists in the large OEMs as well as several
Asian battery suppliers to triangulate Tesla's claims. The large OEMs are not convinced that Tesla has a
real technology edge – but they admit they can't yet match Tesla's claimed battery costs. Most struggle to
understand Tesla's claims – they are not able to find suppliers able to match such low levels. However,
most OEMs report that battery costs are falling fast and some OEMs believe that Tesla's claimed cost levels
may be possible by the end of the decade – subject to achieving massive production scale (this now looks to
be the critical factor).
It may be the case that EVs are going to be more competitive than we previously assumed – and will make
up a much larger part of the fleet in future years. Collaborating with our Tech colleagues (Global Memory
& Consumer Electronics), we revisit our battery cost modeling, technology analysis and cost of ownership
calculations. Nissan and Renault (both rated Outperform) look best placed amongst the mainstream OEMs
to achieve full scale battery production.
Σ The Tesla effect. With Electric Vehicle (EV) offerings from mainstream OEMs failing to sell and with
battery costs apparently too high to be competitive with conventional engines, most industry followers
concluded a while ago that EVs were going to remain niche. Even OEMs themselves – and government
policy makers – seemed discouraged. But then along came Tesla – and the extraordinary technical
achievements and sales success of the Model S – to disturb the consensus. Tesla is now front and centre
in every discussion with auto sector investors. The established OEMs are clearly also fascinated by the
company. But does Tesla's success – and future plans – mean we need to revisit our assumptions about
battery costs and EV competitiveness?
Σ Tesla is a triumph of positioning rather than differentiated technology…so far. The genius of Tesla
has been to position its product at the high end of the market – this has been more instrumental to its
success than cost or technology. While rational car buyers don't want to buy mainstream EVs because
they are more expensive and offer inferior performance to combustion engined cars (Nissan Leaf sales
remain very, very poor), Tesla is selling cars to emotional buyers who are comparing the Tesla S to other
emotional, irrational and expensive products – such as the Mercedes S-Classes and Maserati. That's the
See Disclosure Appendix of this report for important disclosures and analyst certifications.

March 17, 2014
genius of the product – consumers are not doing any cost/benefit calculations – but rather just saying "I
want one"! It is also obvious German executives who have driven the Tesla and watched its sales success
have been slapping their heads and shouting "D’oh! Why didn't we think of this?'', at least in private. It is
obvious that all of the German OEMs have plans to launch high-end Tesla rivals within a few years.
Σ Tesla also claims much lower battery costs than mainstream OEMs. While Tesla is first and foremost
a triumph of positioning and branding, the company is also making increasingly bold claims about its
battery costs – and its plans to move down market. Tesla claims that is battery costs (for full batteries, not
just cells) are now between US$200 and 300 per kWh (the industry measures battery power and cost on
this basis – for reference a Model S battery is 80 kWh). This compares to mainstream OEMs that talked
of over US$700 per kWh in 2011 and still seem to be paying c.US$500 now. We have spent time talking
to specialists in the mainstream OEMs – Renault, Nissan, VW and Daimler – as well as Asian battery
suppliers to try to triangulate Tesla's claims and understand what Tesla's advantage might be.
Σ Does Tesla have a real technology edge? We don't think so. Has Tesla developed unique technology?
One argument put forward is that Tesla battery technology involves packaging thousands of 'commodity'
lithium-ion cells, similar to those used in laptops, into an automotive battery. This is a different approach
to the mainstream OEMs that are using large format lithium-ion cells, designed directly for automotive
applications. Is Tesla's battery fundamentally different, other than in structure? OEM engineers we've
met with insist not. Most, if not all, OEMs have bought a Tesla and have torn it down. To quote one "We
all know the chemistry – it's all settled…we may be able to spice it a bit but essentially we are using
exactly the same chemistry – whether you're talking about cylindrical, pouch or prismatic cells". To
quote another "there is nothing special about Tesla's technology – it's pretty simple". To quote another
"they have some good software, it's interesting how they've chosen to control the battery, but is it better
than our big energy cells? I don't think there is a big difference".
Σ Does Tesla have a genuine cost advantage? Possibly. The figures that Tesla puts out for battery costs
are pretty stunning. Some OEM executives we have spoken with refuse to believe the claims. To quote
one from a large European automaker, after we sent him Tesla's claimed costs: "sorry for my late answer,
but I was so shocked by the number in your e-mail…!! What I can tell you is that I would be very happy
to buy a battery for this price even in 2 to 3 years…".Another argued that "we simply are not aware of
suppliers anywhere that could match that cost". Another executive said ''you have to be very careful with
these kind of claims – do they mean pack cost or cell cost? Does it include cooling system costs? Do they
mean full battery size of available power output? Often these claims are not like for like"'. However
Tesla claims the figure they provide is for the 'all-in' battery cost (although Tesla's larger battery size
means the costs of the cooling and control system are spread over more kWhs). But we did find some
more positive views. One executive said "I think the cost you tell me for Tesla will eventually be possible,
even if we are not there yet. I am a true believer that there will be a technology or production
breakthrough – there's just so much money and so much brainpower being focused on this. We will have
a new generation of cell technology in 6 or 7 years time I believe".
Σ Does Tesla have a scale advantage? Our understanding is that Tesla has cell chemistry and variable
costs that should not, in theory, be much different to the mainstream industry (who are also buying cells
from Asian suppliers). Where Tesla may already have a small advantage – and where it may go on to
press its advantage – is scale. If the key to getting battery costs down is scale (for mass production), then
it's notable that Tesla already buys more kWh of batteries than any other OEM. It makes fewer electric
cars than Nissan, but its average battery size is greater (e.g. Tesla made 22,500 cars x 80 kWh = 1.8mn
kWh of battery capacity procured in 2013; Nissan made less than 50,000 Leafs but its battery is only 24
kWh = 1mn kWh of batteries procured). If Tesla moves fast and builds its much discussed 'gigafactory'
with capacity for 500,000 batteries or more a year, it could quickly pull away in the scale race (although
2

March 17, 2014
Asian suppliers are also building bigger plants and there is obviously a risk of overcapacity if the cars
don't sell).
Σ Scale is key – our battery cost modeling work. We have dusted off our battery cost reduction model –
first built in 2011 with the help of Ricardo PLC – and updated it, to try to understand how the industry
has reduced battery costs faster than we originally anticipated. Our model splits battery costs into cells,
the battery management system, labour, overhead and R&D. It also breaks down the raw material costs
within cells. This analysis suggests that a significant reduction in raw material costs (c.40% of total
battery costs) is unlikely. But there may be big savings from automated production, battery management
system improvement and the amortization of development costs and overheads. We assume this is where
battery producers and OEMs have made the big gains – and how they can now claim costs of c.US$500
per kWh or lower, even at the mainstream OEMs.
Σ How far do battery costs need to fall to be competitive? We have also updated a total cost of
ownership model (TCO) that looks at what battery costs are needed to make owning an EV competitive
with owning a conventional petrol or diesel powered cars. While running costs are lower for an EV
(annual charging costs can be as little as US$500 for a typical annual driving distance), the purchase
price remains much higher and there are also issues related to residuals. Our TCO analysis suggests
battery costs need to fall below US$200 per kWh for a C-segment (VW Golf / Nissan Leaf sized) vehicle
to be competitive with a normal vehicle (using European fuel prices – in the US battery costs would need
to fall even further). We believe the mainstream OEMs are still some way from this cost. But Tesla
claims it is already there – and the rest of the industry hopes to move closer. If such hopes can be
realized, we may at a tipping point for EVs.
Σ Are we underestimating the potential of EVs? So far, Tesla is the only commercial success story for
EVs – but it is a niche high end car that is sold on emotional (and offers much greater range than smaller
EVs). For EVs to go mainstream, they will need to appeal to heads as well as hearts – and that means
being cost competitive with normal cars. It is clear battery costs are falling fast – mainly due to
manufacturing scale, rather than chemistry or technology advances (which may mean someone in the
supply chain is taking some pain as capacity and price run ahead of utilization). The established OEMs
tell us that costs are still not competitive with normal cars. But we are increasingly willing to accept that
they may get close by the end of the decade and EV sales are set to accelerate from here.
Σ What would stronger EV sales mean for stocks? It may be that EVs take more market share than we
anticipated – particularly if we include plug-in hybrids and range extenders (cars with internal
combustion engines but also a substantial battery and the ability to run on electric power only). On the
positive side, perhaps we are underestimating the ability of companies like Nissan, Renault and BMW to
get a payback on their investments. Perhaps suppliers of batteries and other components will enjoy more
growth. More worryingly, perhaps laggard OEMs will need to spend more on R&D and capacity to be
competitive. It's hard to be precise – but we are increasingly aware that we have been too bearish on EVs.
Σ
Investment Conclusion
We have a Neutral stance on the European auto sector. The key call in European autos is whether we
are going to see a genuine European market recovery. The prospects for significant profit growth from
outside Europe look dull – China profits may inch up, but not dramatically, while we believe US earnings
have peaked. So it is all about the home markets. After 5 years of very difficult conditions in Europe, is
there any reason to believe that demand can improve from here? The European SAAR appeared to trough in
2013 at c.11.5mn units, but the SAAR in the final two months crept back towards 12mn. Perhaps it will be a
false dawn, but the upside for Euro-focused OEMs is material if demand trends upwards in 2014 and 2015.
We rate PSA, Renault and BMW Outperform.
3

March 17, 2014
We have a Neutral stance on the Chinese auto sector. Chinese car sales growth surprised in 2013 and we
expect further growth in 2014. However, we expect growth rates to moderate in future years – when they
will collide with large increases in production capacity. Margins in the Chinese market are far above
industry norms but must surely fall in the medium term. Direct government financial assistance appears to
be playing a role in China's fast increasing capacity, which will ultimately lower returns. Within the group,
we find some stocks more attractive than others. We rate Brilliance and Dongfeng Outperform. We rate
Great Wall and GAC Market-perform. We rate Geely Underperform. Within Asian autos we also cover
Tata (rated Outperform) and Nissan (rated Outperform).
We are Positive on both Samsung Electronics and Toshiba. Samsung Electronics owns 20% of Samsung
SDI, the world's largest Lithium Ion Battery maker, which is now expanding from batteries for tech gadgets
to EV batteries. Majority of profits for Samsung Electronics come from handsets, where commoditization
concerns are overdone, with earnings growth mainly coming from structural changes in the memory
industry. Toshiba's earnings growth is mainly coming from memory too, but the company is making strides
in to batteries for both EV and ESS (Electric Storage Systems). We rate both Samsung Electronics and
Toshiba Outperform.
Details
Thank you Elon
Elon Musk is making life for everyone involved in the auto industry more complicated. His car company
likes to see itself as a disruptive force and the commercial success of the Model S – and the degree to which
it has shaken the establishment – suggests it has the potential to live up to its billing.
As followers of mainstream European and Asian OEMs, we get asked almost daily about Tesla. We get
asked about the company and its soaring stock price. We get asked about its technology and product plans.
We get asked about its cost competitiveness. We get asked about what it means for the existing OEMs.
Some of these questions are imponderable – but we think the key issue, above all else, is cost. Does Tesla
have a cost advantage that can shake the industry? First, in terms of giving Tesla an operating advantage.
Second, has Tesla found a way to make batteries that the rest of the industry can replicate – thereby making
everyone's EVs competitive with conventional cars?
Can Tesla go mainstream – or can existing OEMs match its costs?
Tesla's success so far has been based on offering expensive products at a high price. But this is by definition
a niche – albeit a very profitable one for the incumbents such as the Germans. Tesla's volumes and market
share in this segment are increasingly relevant – as we show in Exhibit 1 and Exhibit 2, and it is probably
going to affect German OEM profits to some small degree (a lot now rests on the commercial success of the
Model S in China). But for Tesla to be a true disruptive force, it needs to go down market and pursue much
greater volumes in more mainstream segments. For that, it will need more scale and even lower costs. That
is exactly what it claims it will soon do – including building massive new battery production capacity.
4

March 17, 2014
5
Exhibit 1
Tesla saw its sales volume climb steadily to 6,900 units
in Q4 2013
Exhibit 2
It sold 22,400 units in 2013, close to the global volume
of Porsche Panamera and ahead of US sales of others
8
7
6
5
4
3
2
1
0
Tesla Sales Volume by Quarter
Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013
SalesVolume ('000 Units)
80
70
60
50
40
30
20
10
0
2013: Global Sales Volume of Tesla and
Mercedes
S-Class
Premium Models
BMW
7-series
Audi A8 Porsche
Panamera
Sales Volume ('000 Units)
Source: Company reports and Bernstein analysis. Source: IHS Global Insight and Bernstein analysis.
Tesla Ferrari
Mainstream EV sales remain very poor
The challenge facing Electric Vehicles is highlighted when we revisit the Nissan Leaf. The Tesla sells to
Silicon Valley entrepreneurs and people in the investment industry (it feels like half of all US investors we
speak with have bought one, have ordered one or have a neighbor who owns one…). But back in the real
world, more modest EVs just don't seem to sell. Renault has already quietly killed the Fluence EV. Plans
for a Twingo EV have been put on hold. Over at Nissan, the Leaf is selling less than 25% of its planned
volumes. Is that because the Leaf is a poor product? No, it's an impressive product. Is it because the Leaf
lacks the Tesla's range? Possibly – while cheaper small cars always have less performance than big
expensive cars, they usually have more range than luxury cars, not less. Is it because in the real world
people don't just buy the latest cool car, but rather are price sensitive and work out stuff like total cost of
ownership? That's our assumption. The residual values of the Leaf tell a story too – and suggest even when
cheaper than gasoline cars, there are other factors that put 'real' buyers off.. In the UK, little-used Leafs can
be bought for under 10,000 GBP. But even at this price, buyers don't seem interested.

March 17, 2014
6
Exhibit 3
Nissan Leaf sales are less than 50k p.a. globally and the
key US market just doesn't seem very interested in the
car
Exhibit 4
Nissan keeps cutting the price and raising incentives but
to little effect – 'real'' customers are not convinced
3000
2500
2000
1500
1000
500
0
2011-2013: Nissan Leaf US Monthly Sales
A price cut of US$6,400
on basic sepc
Jan 11
Mar 11
May 11
Jul 11
Sep 11
Nov 11
Jan 12
Mar 12
May 12
Jul 12
Sep 12
Nov 12
Jan 13
Mar 13
May 13
Jul 13
Sep 13
Nov 13
Sales Volume (Units)
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
2011-2013: Nissan Leaf US Monthly
Incentive Spending
Jan 11
Mar 11
May 11
Jul 11
Sep 11
Nov 11
Jan 12
Mar 12
May 12
Jul 12
Sep 12
Nov 12
Jan 13
Mar 13
May 13
Jul 13
Sep 13
Nov 13
Incentive (US$)
Source: Autodata and Bernstein analysis. Source: Autodata and Bernstein analysis.
Revisiting the issues of battery technology and cost
Tesla's claims – and evidence of accelerating plans by Asian battery providers to invest in production
capacity (e.g. Samsung SDI) has spurred us to revisit our previous assumptions about battery costs – by
talking again with technology specialists and by seeking meetings with executives running the EV
programmes at the mainstream OEMs. We come out of these discussions aware that battery costs are falling
fast, but with no mainstream OEMs able to match Tesla's claimed costs. Most are dubious – but obviously
worried – about Tesla's claimed battery cost levels.
We have structured this 'Long View' report into 5 sections:
Understanding the current costs of EVs
Modelling battery cost reduction
Modelling the total cost of ownership (TCO) challenge for EVs
TCO conclusion: battery costs need to fall to US$200 per kWh or below
Appendix: the essential parts of a modern automotive battery.

March 17, 2014
7
1. Understanding the current cost of EVs
Battery costs do appear to be falling faster than we had expected
We argued back in 2011 that battery costs were above US$700 per kWh – for a full system included
packaging and thermal management systems. Our assumption in 2011 was that battery costs would fall by
about 4-5% p.a. - allowing battery costs to fall to under US$600 per kWh by 2015. So far they appear to
have fallen much faster. Our understanding is that German OEMs are already able to buy large batteries for
EV applications at around US$550 per kWh (for an EV battery – smaller batteries for plug-in hybrids cost
more per kWh as the battery management system costs a similar amount, but is shared between fewer
kWhs). Renault-Nissan, a volume leader in EVs, will not provide exact guidance - but we believe its costs
are still around US$400 per kWh. Tesla's claim seems incredibly bold, with the company talking of
US$200-300 per kWh. Few other participants share quite this degree of optimism.
Understanding the cost issue – the primary problem for electric vehicles
To understand the realism of Tesla's claims – and what they mean for the broader industry – it's necessary
to dig deeply into the cost components of a battery – both raw materials and other factor costs. Battery costs
do appear to be falling fast – but to model the potential of cost reduction we need to understand the fixed
and variable cost split of production.
In our view, the potential for cost decline will ultimately be limited by material costs. There is clearly some
potential to reduce material density and there have already been some positive developments on material
selection. But our understanding is that cells still account for 60% of the cost of an EV battery and within
this, raw materials comprise over 60% of cell costs. So material costs still represent c.36% of the cost of a
battery pack (60% of 60%). Reducing the costs of these materials further will be hard.
Automation and mass production matter – hence Tesla's 'gigafactory' plan
Volume will therefore be the key to reducing battery costs. Getting battery costs lower still will require
significantly more scale to allow supplier to build proper plants with higher levels of automation and better
overheads recovery. This is clearly what Tesla is planning with its talk of a 'Gigafactory' in the South West
of the US, designed to build 500,000 battery packs or more.
At present, costs are high and most 'mass market' electric vehicles are loss making
The reality at present is that Electric Vehicles remain substantially more expensive to develop and produce
than conventional vehicles due to high battery costs. Nissan's pricing for the purely battery-powered Leaf
starts at just ~$33,000 in the U.S. after further price cuts - a price at which we believe Nissan loses money.
Even after generous government subsidies lead to lower net prices, prospective buyers still face a
significant price premium compared to a conventional vehicle. The sobering fact is that even at these
elevated prices, every mainstream EV sold is likely to result in a loss for the OEMs.
Exhibit 5 shows our estimate of the cost walk of a full battery electric vehicle from a standard gasoline ICE
vs. the US MSRP of the Nissan Leaf (US$33, 000 upwards). The main cost item is the battery which we
believe costs Nissan over US$13,000 (a 24 kWh battery at US$500-550 per kWh) – although Nissan

March 17, 2014
8
suggests its costs are now trending below this level. This cost walk does not include extra allocations for
higher R&D, capex, marketing or overhead costs.
Exhibit 5
Even at current high prices, electric vehicles are still likely to result in a loss for the OEM (battery cost is key and this
analysis assumes over US$500 per kWh for the Leaf)
1,688
225 200 750 1,250
18,000
$40,000
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
Source: Ricardo and Bernstein estimates and analysis.
3,750
313 400
13,200
15,100
A quick comparison of powertrain option costs
To understand EVs – and their ability to compete - we need to compare their powertrain costs to traditional
powertrains (gasoline and diesel engines). To do this, we need to capture the engine cost but also
electrification costs and transmission and driveline costs for each technology. Each category therefore
consists of several subcategories. Based on the most appropriate technology specification for a current C-segment
model, we estimate that current baseline powertrain costs range from US$2,300 for a simple
gasoline ICE powertrain to almost US$18,000 for full electric vehicle – see Exhibit 6.
38,000
33,000
$0
Vehicle Cost (excl. VAT)
ICE
Fuel System
Exhaust System
Transmission
Ex-Powertrain Cost
Electric Motor(s)
Power Electronics &
Charging
E-Transmission
Other Vehicle Cost
Battery Cost
EV Cost (ex. VAT)
Nissan Leaf (US MSRP)
Vehicle Cost
Gasoline ICE to Full Electric Vehicle Cost Walk (C-Segment, 2013 Level)

March 17, 2014
9
Exhibit 6
We believe EV powertrains still cost c.6x that of current basic gasoline engined powertrains
25
20
15
10
5
0
Powertrain Costs by Category (2013)
1. ICE G 2. ICE D 3. HEV G 4. HEV D 5. PHEV G 6. PHEV D 7. BEV
Powertrain Costs (US$ 000)
ICE System Fuel System Exhaust System & Aftertreatment Battery System (not SLI)
E-Motors Other Power Electronics Transmission Driveline
What's needed within an EV powertrain?
When it comes to analyzing the cost of EV powertrains, we need to include the battery system (full pack
incl. battery management system), the e-motors (traction and generator motors) and other powertrain
electronics, which includes DC-DC converters, low voltage system controllers, inverter, adapted electric
ancillaries as well as charging equipment, where applicable.
Battery system costs depend on the chosen chemistry, the price per kWh of this chemistry and the required
battery capacity. There are various chemistries (e.g. Lithium Iron Phosphate vs. Lithium Manganese Oxide
Spinel, high energy vs. high power) but we do not believe their costs are vastly different. The battery
requirements can obviously vary significantly across different types of EV. But a typical C-segment car like
a Nissan leave needs a battery of c. 24 kWh – see Exhibit 7. The specifications in this exhibit allow PHEVs
an all-electric range of about 50km/30miles under ideal conditions (based on an energy consumption of
~0.16kWh/km). Our full EV specifications result in a range of c.160km/100miles. Full hybrids are typically
optimized to support the ICE when extra power is required rather than maximize all electric drive range.
But the 1.7-2.1 kWh capacity does nevertheless offer some kilometers of all electric drive under certain
conditions. Air conditioning, heating, rapid acceleration or heavy loads can decrease the technical range by
a third in a real-life scenario.
Battery costs have fallen fast – but we believe a Nissan Leaf battery is still a US$10,000 plus item
Pure electric driving without the back-up function of an on-board engine for longer trips requires a massive
battery pack – which at 25kWh weighs around 300kg in itself and – if battery costs are now down at the
US$550 per kWh level, may cost around US$13,000. If costs are now nearer US$400 per kWh (which
Nissan alludes to), the cost would obviously be in the region of US$10,000. If we take Tesla's claims at face
value, a battery pack of this size could cost as little as US$5,000. Based on our battery cost trajectory and
the expected battery efficiency improvements (see Exhibit 8), this figure could fall to the level claimed by
Tesla (US$5,000) by 2025 – but this is unproven – and would mean costs that are still substantially higher
than the full powertrain of traditional diesel or gasoline ICE options.

March 17, 2014
10
Exhibit 7
We expect battery prices to fall by over 50% over the
next 15 years – but we may still be too conservative
Exhibit 8
A pure C-segment EV is estimated to require 25kWh of
battery capacity
Assumed Battery Price Development
550
($/kWh)
440
300
243
600
500
400
300
200
100
0
2013 2015 2020 2025
Battery Capacity ($/kWh)
Assumed Battery Capacity Requirements
1.7
2.1
8.0 8.2
30
25
20
15
10
5
0
3. HEV G 4. HEV D 5. PHEV G 6. PHEV D 7. BEV
Battery Capacity (kWh)
Source: Ricardo and Bernstein analysis and estimates. Source: Ricardo and Bernstein analysis and estimates.
25.0
Other costs: E-motors currently add US$900 to US$1,500 to xEV vehicle costs
There are three main motor technology choices for hybrids and electric vehicles: brushless permanent
magnet motors, induction motors and switched reluctance motors. Permanent magnet motors allow high-torque
density and are relatively compact. They are therefore the preferred choice for hybrids and plug-in
hybrids. Electric vehicles face less packaging restraints and thus can use induction motors, which have the
added advantage of lower production costs even if their power density is not as high.
Our model assumes the use of a surface-mounted permanent magnet 50kW traction motor and an additional
30kW generator motor for diesel and gasoline full hybrid and plug-in hybrid applications. The combined
cost is estimated at around US$1,500. Pure electric vehicles do not require a generator motor and the
traction motor is assumed to be a 70kW AC induction motor. System costs are likely to be 20% lower than
those for hybrid applications.
Looking ahead, we believe economies of scale and further efficiency improvements will allow cost
reductions of 30% over five years, followed by a further 20% until 2020. Rising costs for magnets are a
short-term risk to these estimates. Longer term, we believe that material intensity of magnets used in motors
will reduce and balance some of the effects.
Power electronics are an often overlooked cost category
Non-e-motor related power electronics are an often underappreciated cost category. This cost category
covers three major functional systems:
1. Inverters, which convert the DC current from the battery into a 3-phase current to the motor and vice
versa.

March 17, 2014
2. Voltage boosters, which are used to boost the battery voltage to a higher, stable level for the inverter,
thereby improving the efficiency of the inverter and motor, and allowing a battery with fewer cells.
3. DC-DC converters, which convert the high voltage from the battery to 12V required for other vehicle
systems.
Additionally we also include costs for adapted electric ancillaries as well as on-board charging equipment.
Costs for these systems are substantial and far exceed the costs of electric motors. Full hybrids are
estimated to have about US$3,000 worth of power electronics equipment on board. More expensive
inverters and onboard chargers increase this to around US$4,000 for plug-in variants. The power electronics
architecture of EVs is somewhat less complex than PHEVs.
Transmission and driveline costs of xEVs are lower vs. conventional vehicles
Manual transmissions are set to continue to be used for some time in pure ICE applications due to their low
production and running costs. But we will likely see a shift from 5 to 6 speed versions. Pure EVs could
theoretically completely dispose off a transmission if in-wheel motors are used. However, we think in
practice most will use a relatively cheap electric variable transmission (epicyclic) transmission, similar to
the one used in hybrids. We estimate that transmission and driveline cost combined are around US$900 for
diesel and gasoline ICE powertrains, US$500 for hybrids and PHEVs and US$350 for EVs.
11
2. Modelling battery cost reduction
Understanding and forecasting battery costs
In 2011, we developed a very detailed battery cost model, with help from Ricardo PLC, which looked at
material costs in battery cells, battery management systems, labour and assembly costs and overheads. The
material cost analysis breaks down the cells into cathode, anode, separator, electrolyte, copper and
aluminium foil – and packaging materials. It models the potential cost reduction from materials purchasing
and efficiency gains via technological advances.
We have revisited and updated this model to check our assumptions against the claims being made by
mature OEMs – and by Tesla. We believe we may have previously failed to capture the potential for cost
reduction from production scale. But the gains from material costs are still modest. We believe this model
gives a sensible view on what is possible for cost reduction – and suggests it may be possible to get battery
costs down to as low as US$300 per kWh or even lower – but only with vast volumes. This cost is still
above what Tesla claims is possible…today.
Scale is critical
Forecasting battery costs accurately is nearly impossible as the relationship of virtually all cost drivers is
dynamic: A strong initial EV uptake for example allows for economies of scale and learning curve effects
to materialize quickly and is likely to encourage further investments in research and development. All of
which should help to drive down battery costs and thus increase the competitiveness and uptake of EVs
further. Sluggish sales however will inhibit major cost reductions, possible suppressing future demand
further.

March 17, 2014
12
Material costs (difficult to reduce) vs. fixed costs (scaleable)
To understand and to forecast cost developments, we need to understand the constituent costs of batteries.
Working with Ricardo PLC in 2011, we broke down batteries into six main cost categories. We believe
these estimates are still reasonably accurate:
Σ Materials (raw material costs and processing costs) - 39% of total costs
Σ Battery Management System (BMS) - 15% of total costs
Σ Labour - 18% of total costs
Σ Overhead - 19.5% of total costs
Σ Research & Development - 8.5% of total costs
Σ Profit margin - <1% of total costs
When it comes to cost reduction potential, it's likely that labour efficiency and overhead cost amortization
offer the greatest potential for advances – as well as reducing the cost of the battery management system.
This is mainly driven by economies of scale achieved through the forecast acceleration of EV sales. As
fixed costs fall, raw materials will actually increase in relative importance.
Exhibit 9
Our assumptions about the cost break down of an automotive Lithium-Ion battery
Complete Battery Level Pack Level
Materials 39.0% Cells 60%
BMS 15.0% BMS 15%
Labour 18.1% Labour 11%
Overhead 19.4% Overhead 11%
R&D 8.4% R&D 3%
Operating Profit 0.1% Operating Profit 0%
Total 100.0% Total 100%
Source: Ricardo and Bernstein analysis and estimates.
Cell level costs account for 60% of the full pack costs
Cell costs are the largest single driver of battery costs and typically account for around 60% of the pack
costs (see Exhibit 10). On a cell level, material costs – which include raw material prices and processing
expenditure – can make up two-thirds of the costs (see Exhibit 11).

March 17, 2014
13
Exhibit 10
Cells typically account for 60% of battery pack costs –
the battery management system ranks second
Exhibit 11
Materials are the main cell cost driver, but overhead
costs, R&D, etc. are also very significant
Battery Pack - Cost Composition
Cells, 60%
R&D, 3%
Overhead,
Labour ,
11%
11%
BMS, 15%
Cell Level - Cost Composition
Overhead,
14%
Labour,
12%
R&D, 9%
Source: Axeon and Bernstein research. Source: Axeon and Bernstein research.
Material,
65%
Battery management system is also a large part of cost
The second most important cost block is the battery management system. Due to the relative immaturity of
the battery management system in EVs, costs can amount to circa $3,000 for a full EV system. Labour and
overhead follow with a cumulative 18% and 19% cost share respectively (considers pack as well as cell
level costs). Low manufacturing quantities mean that the cost burden coming from these items can amount
to more than $250/kWh.
Material costs account for ~40% of today's full pack level costs
Li-Ion material costs account for about 40% of today's full pack level costs – or around $300-350/kWh. A
fraction of these costs come from the direct raw material costs, while the vast majority is dependent on the
required manufacturing complexity. Exhibit 12 shows the raw material composition of a typical Li-Ion
battery, while Exhibit 13 gives an overview of the cost split for the six key components in a battery cell.

March 17, 2014
14
Exhibit 12
Typical raw material split of a Li-Ion battery (by weight)
Exhibit 13
Cost split of a Li-Ion battery cell
Material Split Li-Ion Battery
Aluminium
29.2%
Copper
Cobalt
2.7%
Lithium
Oxide
(LiO2)
5.3%
Nickel
2.6%
Electrolyte
8.7%
Manganese
Graphite/
Carbon
10.6%
2.5%
Other
2.9%
Plastic 24.5%
11.0%
Cell Material Cost Split
Cathode
42%
Aluminium
Separator
30%
Electrolyte
Foil
3%
Anode
12%
5%
Copper Foil
8%
Source: Argonne National Laboratory and Bernstein analysis. Source: Yano Research and Bernstein analysis.
Raw materials: actual Lithium content in Li-Ion batteries is low
At the raw material level, Li-Ion cells are predominantly made of aluminum and copper. Based on today's
average pack level energy density of 80 Wh/kg – or 12.5kg/kWh – every kWh Li-Ion battery contains as
much as 3.6kg aluminum and 3.1kg copper (aluminum and copper are used as the cathode and anode
current collectors, respectively). With a total weight of 1.4kg per kWh, plastic comes in third. Key use of
the polypropylene and polyethylene is in the highly sophisticated porous separators that act as a semi-permeable
membrane in the electrolyte. The graphite/carbon used for the anodes weighs a further
1.3kg/kWh, followed by the electrolyte – typically a non-aqueous inorganic solvent – with just over
1kg/kWh.
Contrary to popular belief, the actual lithium content in Li-Ion is relatively low. Lithium Oxide (LiO2)
accounts for about 5.3% of total weight. The weight of the actual lithium metal is only about half as much –
or circa 300 g per kWh.
The remaining material is mainly bound in the cathode and varies with the specific chemistry used. The
split shown in Exhibit 12 is for a Lithium Nickel Cobalt Manganese specification, with a 2.7% cobalt,
2.6% nickel and 2.5% manganese weight share for the full battery pack.
Cost split: cathode material and separators account for more than 70% of total cost
Li-Ion battery variants are typically named after their cathode materials, which largely define the
performance characteristics of the battery. Most research efforts and expenditures therefore concentrate on
the development of new cathode material compositions and manufacturing processes. Unsurprisingly, the
cathode commands the highest cost share of the six key cell elements – about $130/kWh, or circa 42% of
today's Li-Ion battery cell material costs (see Exhibit 13).

March 17, 2014
The material used for separators might be only about 11% of the total battery weight – but the costs
associated with these membranes are substantial: About 30% of the cell material costs, or circa $100/kWh.
Separators are crucial to prevent heat-up accidents. Higher value-added products are frequently introduced
to the market.
Compared to their cathode counterpart, anodes are fairly simple, which is reflected in lower costs of just
~$35/kWh. Anodes are usually made of synthetic graphite/carbon, but it is also possible to use lithium
titanate instead. This allows for a much longer cycle life, albeit at a lower energy density level compared to
traditional graphite-based systems.
The aluminum and copper foils used at the positive and negative pole respectively might dominate the split
by weight, but their cost importance is much lower: About 8% ($25/kWh) for copper and just 3% ($11) for
aluminum.
Dissolved lithium salt in an organic solvent – e.g., LiPF6 in propylene carbonate – is the most common
electrolyte. Its manufacturing process is already highly optimized and its cost share a moderate 5% – or ~
$15/kWh.
Modelling battery costs in detail
To model the cost reduction potential, we have pulled together all the assumptions outlined above into a
proper cost model. We first published this in late 2011. While we think the methodology is still valid, it
does seem that costs have fallen far faster than we assumed. Exhibit 14 gives an overview of the cost
estimates (in $/kWh) that we published in 2011, compared to the 2010 base cost of $750-$800/kWh. It
seems that battery costs have fallen far faster than we originally anticipated – being below 2015's estimate
already and rapidly closing on our 2020 forecast! If Tesla's claims are representative, the US company may
already be at or below 2025's cost target.
15
Exhibit 14
Our original forecasts called for Li-Ion battery costs to fall to c.US$400 per kWh by 2020 – has this been achieved
already?
100%
$900
$800
$700
$600
$500
$400
$300
$200
$100
Source: Bernstein research and analysis.
80%
54%
44%
100%
80%
60%
40%
20%
0%
$0
2010 2015 2020 2025
Cost Level vs. 2010
Cost per kWh
Lithium-Ion Battery Cost Development - $/kWh (2010-2025)
Materials BMS Labour Overhead R&D Operating Profit

March 17, 2014
Our cost reduction assumptions in detail
To model Lithium-Ion cost reduction potential we break down the typical cost structure of a battery pack by
item (materials, battery management system, labour, overhead and R&D) and model their cost reduction
potential on a kWh basis. Starting from our understanding of 2010 levels, we have modeled the path
towards competitive costs, as summarized in Exhibit 15. It seems that the industry is already moving faster
than anticipated and is on course to hit our 2020 assumption many years early. We explore the detailed cost
reduction assumptions in detail below.
16
Exhibit 15
Our original modeling of the cost reduction potential by area of an automotive Lithium-Ion battery
Complete Battery Level ($ per kWh) 2010 2015 2020 2025
Materials $312 $249 $190 $169
BMS $120 $76 $48 $33
Labour $145 $104 $71 $52
Overhead $155 $131 $69 $39
R&D $67 $54 $28 $18
Operating Profit $1 $24 $30 $42
Total $800 $637 $435 $353
% Change 2010 2015 2020 2025
Materials 0% -20% -39% -46%
BMS 0% -37% -60% -72%
Labour 0% -28% -51% -64%
Overhead 0% -16% -56% -75%
R&D 0% -20% -59% -74%
Operating Profit 0% n.a. n.a. n.a.
Total 0% -20% -46% -56%
% from 100 100% 80% 54% 44%
Material cost reduction assumptions: the hardest area to take out cost
Current Li-Ion batteries have a very high material intensity. Cell energy densities of c.120-140Wh/kg
translate into approximately 80Wh/kg on a pack level – or about 12.5kg/kWh. A 25kWh electric vehicle
battery pack – as for example used in the Nissan Leaf – thus weighs around 300kg. This extra weight also
requires additional expensive, and again heavy, battery cells. Furthermore, a heavy battery pack affects the
handling of the car and causes packaging problems for the vehicle designers (rather cleverly solved by
Tesla's vehicle design with low, flat battery – but this may be one of the factors creating problems now with
the battery being damaged in impacts and catching fire, according to some of the OEMs we have discussed
the issue with).

March 17, 2014
Materials Requirement (kg/kWh) 2010 2015 2020 2025
Aluminium 3.963 3.148 2.249 1.787
Copper 3.125 2.482 1.774 1.409
Polymer 1.375 1.092 0.781 0.620
Lithium 0.313 0.248 0.177 0.141
Nickel 0.375 0.298 0.213 0.169
Other 3.350 2.661 1.902 1.511
Total 12.500 9.929 7.096 5.636
Materials Requirement - % improvement over 2010 Base year 2010 2015 2020 2025
Aluminium -21% -43% -55%
Copper -21% -43% -55%
Polymer -21% -43% -55%
Lithium -21% -43% -55%
Nickel -21% -43% -55%
Other -21% -43% -55%
Total -21% -43% -55%
Total 100% 79% 57% 45%
17
Exhibit 16
Our assumptions about material weights in a typical Lithium-Ion battery – and the reduction potential
The high material intensity also exposes battery costs more to swings in raw material prices. A lot of
research and development effort therefore goes into Li-Ion chemistries with higher energy densities, i.e.,
higher Wh rating per kg of battery. Based on feedback from leading battery suppliers in the xEV battery
industry, we have put together a potential development curve for Li-Ion weight per kWh (see Exhibit 17).
Exhibit 17
As energy density increases, batteries reduce in weight and require fewer raw materials
100%
14.00
12.00
10.00
8.00
6.00
4.00
2.00
Source: Bernstein research and estimates.
79%
57%
45%
100%
80%
60%
40%
20%
0%
-20%
0.00
2010 2015 2020 2025
Weight Level vs. 2010
Weight kg/kWh
Material Requirement - kg/kWh (2010-2025)
Aluminium Copper Polymer Lithium Nickel Other

March 17, 2014
Materials Cost per kWh excl. Raw Material Price Changes 2010 2015 2020 2025
Cathode $131 $99 $67 $57
Anode $37 $30 $21 $19
Seperator $94 $78 $66 $59
Electrolyte $16 $14 $12 $11
Copper Foil $25 $21 $18 $16
Aluminium Foil $9 $8 $7 $6
Total $312 $249 $190 $169
% Development 100% 80% 61% 54%
YoY Improvement 2010 2015 2020 2025
Cathode 0% -25% -49% -56%
Anode 0% -21% -43% -50%
Seperator 0% -16% -30% -37%
Electrolyte 0% -12% -24% -30%
Copper Foil 0% -16% -28% -35%
Aluminium Foil 0% -16% -28% -35%
Total 0% -20% -39% -46%
% Development 100% -20% -39% -46%
18
In the short term, improving existing chemistries via development engineering can yield a 3-4.5% annual
energy density improvement curve over the next five years. The significant money poured into Li-Ion
battery R&D over the past 3-5 years is largely credited with achieving this relatively rapid progress.
In the medium term, the development of advanced cathode materials, Lithium alloys and silicon carbide
compounds are expected to yield a further 20-40% improvement.
In the long term, explorative research into advanced lithium systems, oxide- based systems or other new
energy storage systems may be able to reduce weight per kWh substantially.
Efficiency and material cost improvements
We forecast that cell material costs will reduce from currently circa $320/kWh to $250 in 2015, to
$190/kWh and finally reach $170/kWh – see Exhibit 18. The relative cost reduction potential is slightly
lower than that of the material intensity, as many performance-enhancing options will need either more
expensive raw materials or require complex and expensive advanced processing (e.g., nanotechnology).
Exhibit 18
Our estimate of material cost savings for a Li-Ion battery per kWh
Of the different material cost elements, we expect cathodes to yield some of the biggest cost reduction
potential. Cheaper Li-Ion variants and economies of scale for cathode processing are estimated to reduce
costs by 25% in the short term and ~50% in the medium term. In the long term, we expect battery suppliers
to focus increasingly on superior performance characteristics rather than just lower costs. We therefore
expect cost levels to only reduce by a moderate 10% from 2020 to 2025.
Due to their relative simplicity, anodes will mainly benefit from economies of scale, but less so from
technological advancements. We therefore expect them to lag behind the cost progress made by cathodes
and expect an average annual cost reduction of ~4.5% p.a.

March 17, 2014
Separators are likely to receive continued research and development attention. Future value added products
are expected to balance improved safety profiles with lower costs. We expect a cost decline of 3.5% p.a. in
the short and medium term, trailing off to around 2% p.a. in the longer run.
Electrolytes are already some of the most mature components used in xEV cells. Further cost improvements
will be strongly linked to energy cost reductions and very substantial volume improvement.
Current collecting copper and aluminium foil prices are closely linked to the raw material costs. Additional
demand from xEVs is unlikely to affect prices for these commodities, in our view. Nevertheless, efforts are
being made to decrease the required raw material content to reduce battery weight and limited exposure to
raw material price swings.
19
Exhibit 19
Cell material costs are expected to come down by c.40% until the end of the decade, driven by economies of scale
and technology advancements
100%
Cell Material Cost Development - $/kWh (2010-2025)
80%
$350
$300
$250
$200
$150
$100
$50
$0
2010 2015 2020 2025
Cost per kWh
Cathode Anode Seperator Electrolyte Copper Foil Aluminium Foil
Source: Axeon, Yano Research and Bernstein research and estimates.
61%
54%
100%
80%
60%
40%
20%
0%
-20%
Cost Level vs 2010
Battery management system – Tesla may have an edge in this area
The BMS is one of the most promising sources of rapid cost reduction. Currently, we believe the BMS for a
full EV costs around $3,000 – or $120/kWh. Yet, industry experts expect them to come down fast –
potentially to as little as $500 per system ($20/kWh based on a 25kWh battery pack) in the medium to long
term. This may already be an important part of Tesla's claimed cost edge.
BMS feature both kWh-rating dependent and independent cost elements. On average, we therefore keep our
cost forecast above the $20/kWh level, but we acknowledge that especially vehicles with large battery
packs could benefit from even lower average BMS cost per kWh (this is relevant to Tesla, with its large
battery pack). We expect the average cost per kWh to fall 37% over the next five years to $75/kWh – see
Exhibit 20 – followed by another drop of the same magnitude over the subsequent five years to reach
$50/kWh in 2020. By 2025, costs should have reduced to below $35/kWh for the lower electrification grade
vehicles (hybrids and PHEVs with relatively low battery capacities). Pure electric vehicles and PHEVs with
large battery packs are likely to achieve even better cost figures.
The above cost estimates are based on individual cost forecasts for the key components in a BMS: A single
battery control module (BCM) and multiple cell voltage and temperature monitoring circuit boards

March 17, 2014
(VTMB) devices. Current costs are estimated at circa $150 per battery pack for a BCM and further
$110/kWh for the various cell monitoring units.
Learning curve effects and economies of scale should quickly yield cost improvements – especially for the
still very immature VTMBs. Based on historical microprocessor trends and forecasts, we estimate that
VTMBs could fall in price by ~9% annually until 2020, followed by 7% until 2025 (see Exhibit 21). BCMs
are more mature, but will also benefit from higher xEV sales volumes.
20
Exhibit 20
BMS cost are expected to fall below $35/kWh – from
>$120/kWh currently
Exhibit 21
Efficiency improvements should offer savings of >5%
per year on manufacturing
$140
$120
$100
$80
$60
$40
$20
$0
BMS Cost - $/kWh
2010 2015 2020 2025
Average Cost per kWh (based on 25kWh battery)
$160
$140
$120
$100
$80
$60
$40
$20
$0
Labour & Manufacturing Costs - $/kWh
2010 2015 2020 2025
Cell Assembly Module Assembly
Source: Bernstein research and estimates. Source: Bernstein research and estimates.
Labour and manufacturing costs have strong potential for cost reduction, thanks to scale
Current manufacturing costs amount to $145/kWh – of which $60/kWh is allocated for the already
comparatively automated cell assembly.1 The remaining $85/kWh is required to assemble the cells into
modules. These manufacturing costs include direct labor costs as well as CAPEX expenditure for the
machines and facilities.
Scale will matter: the logic of Tesla's 'gigaplant'
As volumes pick-up and new, highly automated production facility come on-line, manufacturing
efficiencies based on our xEV forecast are likely to run at 7-8% in the short and medium term for the cell
assembly. Module level manufacturing will also benefit from the growing xEV uptake – potentially at a
cost-reduction rate of 6-7% per year.
In the longer term, efficiency improvement will slow as early scale and learning improvements have been
"banked." According to industry sources, battery suppliers can reduce costs by circa one-third with every 7-
1 State-of-the-art manufacturing of battery cells on a production line includes mixing and coating, calendaring and
slitting, cutting, tab welding, automated assembly and inspection, followed by testing, cycling and packaging.

March 17, 2014
10-fold increase of production volumes. This rate of growth is relatively easily achieved in the short term
and to some degree in the medium term, but less so in the long term, when market volumes have picked up.
Over the forecast period we expect cell assembly costs to fall to $40/kWh in 2015, $25/kWh in 2020 and
reach $20/kWh in 2025 – see Exhibit 21. Module level assembly costs are expected to fall slightly slower
from $85/kWh in 2010, to $65/kWh in 2015, $45/kWh in 2020 and finally $30/kWh in 2025.
R&D costs – will remain high but can be amortized over volume
Research and development for new battery chemistries suitable for electric propulsion incurs high upfront
costs and long lead times before a product is actually used in the market. Our estimates quantify R&D costs
per kWh at around $40-$45/kWh for the cells and a further $25/kWh for the module integration and
optimization (see Exhibit 22). These figures are for relatively mature chemistries and technologies. The
development of entirely new chemistries (e.g., lithium air) will require much higher upfront investment.
At the current level, R&D costs are in excess of 8% of total battery costs – and potentially higher if the
costs of exploratory research are also allocated to today's production volumes. We believe that the total
investment in battery chemistries will further increase in the coming years, but because of higher unit
volumes, relative cost allocation will drop. Based on industry sources and our own xEV uptake projections,
we believe R&D allocation can decrease to 7% in the medium term and settle at around 4-5% in the long
term – the long-term figure corresponds to the R&D level currently observed for "regular" consumer
electronics battery suppliers.
21
Exhibit 22
R&D costs are expected to settle at around 4-5% of total
costs by 2025E
Exhibit 23
Current low production volumes result in high SG&A
costs
$80
$70
$60
$50
$40
$30
$20
$10
$0
R&D Allocation- $/kWh
2010 2015 2020 2025
Cell Level Module Level
$180
$160
$140
$120
$100
$80
$60
$40
$20
$0
Overhead Costs - $/kWh
2010 2015 2020 2025
Cell Level Module Level
Source: Bernstein research and estimates. Source: Bernstein research and estimates.

March 17, 2014
Scale will also drive down SG&A costs
Because of low annual production volumes, sales, administration and other overhead costs account for a
disproportionally high cost share. On a full battery level, we estimate that ~19% of costs fall into this
category, equal to about $155/kWh (compare Exhibit 23).
Mainstream volume battery companies operate on a typical SG&A allocation of around 7-10% of total
revenues, potentially even lower. LG Chem for example, the company that supplies the battery pack for the
GM Volt and owns the largest dedicated plant for EV batteries, runs at around 6.0-6.5% SG&A allocation
(based on total company revenues, not just electric vehicle battery revenues).
We believe that xEV volumes will not be sufficient over the forecast period to drive SG&A allocation
towards the lower end of this continuum, especially since so many new players are entering this industry.
However, we believe that a 10-11% allocation by 2025 can be realistically achieved.
22
3. Modelling the total cost of ownership (TCO) challenge for EVs
We believe it's impossible to forecast the potential of EVs without looking at the economics of buying one
from the perspective of a consumer. Logical consumers will only buy new-generation vehicles in significant
quantities when it makes economic sense to do so. In 2011 we published an in-depth, bottom-up Total Cost
of Ownership (TCO) model that demonstrated just how tough the cost challenges are for EVs. We have
dusted this model off and updated it for our understanding of the latest developments in lithium-ion battery
costs. But even with battery costs falling faster than we expected they are still far from competitive.
EVs are not cost competitive for consumers
At current prices, electrified vehicles without exception fail to offer any cost savings. Even with subsidies,
free parking and other incentives, the cost of ownership calculation is not convincing. Lower running costs
are not enough to justify the high initial investment and subsequent higher capital depreciation. Compared
to the cheapest TCO option – the traditional diesel ICE – we calculate that driving a hybrid will cost the
buyer an additional ~€400-500p.a., plug-in hybrids are €1,000 more expensive per year to own and a pure
EV incurs a cost penalty in excess of €2,500. By the end of the decade, falling battery costs will lower EV
prices and therefore improve the total ownership costs of these vehicles – but we believe full electric
vehicles will continue to trail behind other powertrain options.
Our detailed model to analyze and forecast the total cost of ownership (TCO)
Are EVs a rational choice based on a TCO assessment? In order to answer this question, we have built a
detailed bottom up TCO model. This model calculates current and forecasted vehicle sales prices and
residual values as well as full running costs for seven different powertrain options over a 15 years' time
frame (2010-2025). It calculates costs based on a typical new vehicle first ownership period of four years
and an annual mileage of 14,000km. The full details of this complex model are available in our original
2011 Blackbook on the subject (see "Don't Believe The Hype: Analyzing the Costs and Potential Of Fuel
Efficient Technology" – September 26, 2011). For this note, we have updated the analysis and provide a
summary of the conclusions.

March 17, 2014
TCOs modeled for a C-segment car with 7 different powertrain options
With the help of specialist consultancy Ricardo PLC, we modeled and forecasted total cost of ownership for
a C-segment vehicle with seven different powertrain configurations:
1. Gasoline Internal Combustion Engine (ICE G)
2. Diesel Internal Combustion Engine (ICE D)
3. Full Gasoline Hybrid (HEV G)
4. Full Diesel Hybrid (HEV D)
5. Gasoline Plug-In Hybrid (PHEV G)
6. Diesel Plug-In Hybrid (PHEV D)
7. Battery Electric Vehicle (BEV)
Vehicle list prices were calculated taking into account powertrain costs (engine system incl. fuel system and
after treatment, batteries and motors, and transmissions), non-powertrain-related costs (the vehicle glider)
as well as vehicle development and assembly costs and any other OEM-related mark-ups. For the TCO
calculation we used the delta between the initial purchase prices and the estimated residual value over the
ownership period. The annual running costs were based on estimates and forecasts for fuel economy and
fuel prices (diesel, gasoline and electricity), insurance premiums, maintenance costs and taxes. Outright
purchase incentives as well as the decisions of OEMs to market vehicles at prices below the direct vehicle
costs were not considered.
EVs cost more to buy, but less to run
The spread of current prices is substantial: Regular diesel vehicles cost on average €2,500 more than a
gasoline version. Full hybrids sell at around €23,000 for a gasoline version, while diesel counterparts carry
a further €1,500-€2,000 cost penalty. A full EV realistically needs a price tag of well over €35,000 to cover
the actual vehicle costs – and much more if we would consider a proportional profit and R&D allocation.
The TCO comparison - conventional cars will see powertrain costs climb in the future
EVs look very expensive now, but their costs will fall and the cost – and price – of conventional cars will
also rise over the next 10-15 years. Internal combustion engines will need to become much more
sophisticated to meet increasingly stringent emission and fuel-economy legislation. We expect that future
vehicle prices will reflect these changes in the underlying cost structure and result in lower vehicle prices
for xEVs and higher prices for vehicles powered by conventional powertrains – but not enough to make
EVs fully competitive.
Fuel efficiency technology and emissions standards will raise costs
Internal combustion engines will need to employ more sophisticated technologies to meet upcoming fuel
economy and emission legislation. Even more so if they are to remain the only source of power generation.
Consequently we expect the costs of gasoline and diesel powertrains used in non-hybrids to increase
sharply. Over the course of the next 15-years we expect gasoline powertrain costs of a C-segment car to
increase by over 60% from today's level. While aftertreatment and fuel system costs are expected to remain
fairly stable, the engine system itself will undergo a series of additions: stop-start system, direct injection,
variable valve timing and a variable geometry turbocharger in 2015, upgraded turbo charging and e-boost in
2020, and an e-compound turbo in 2025.
23

March 17, 2014
Diesel technology is fundamentally more efficient than gasoline ICE, but it is also more expensive and
results in a cost delta of ~€1,600 versus a gasoline engine. Turbo charging and an EGR system add to the
cost of the assumed 100 kW base engine, as do the diesel particulate filter and the diesel oxidation catalyst.
Gasoline hybrids currently employ a slightly more expensive ICE technology than their non-electrified
counterparts (variable valve timing with twin phasing), but remain otherwise comparable (total powertrain
costs of €1,750). Diesel hybrids, on the other hand, are likely to use downsized engines, thus somewhat
lowering the associated costs as well as the related costs for the fuel system and aftertreatment (total cost of
€2,700).
24
Exhibit 24
Gasoline ICE powertrain costs are expected to have the highest relative cost increase, but diesels will likely stay
more expensive
1.7
3.3
2.2
3.7
2.5
3.8
2.8
ICE Powertrain Costs (2013-2025)
3.8
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
ICE - Gasoline ICE - Diesel Full Hybrid - Gasoline Full Hybrid - Diesel Plug-In Hybrid -
ICE Cost (€ 000)
1.7
2.7
1.7
2.7
1.8
2.8
1.7
2.8
1.8
2.9
1.8
2.9
2.2
2.9
1.8
2.9
Gasoline
Plug-In Hybrid - Diesel
2013 2015 2020 2025
Full powertrain cost differences versus EVs will obviously decrease
We currently estimate that current total powertrain costs range from €2,300 for a complete gasoline ICE
system to c. €18,000 for a full battery electric vehicle –a spread of about 700%. By 2025 we estimate that
the gap will have narrowed dramatically, but will still be significant.
TCO running costs: just how much cheaper are EVs to operate?
Just how much cheaper are xEVs to operate? To answer this question, we have individually modeled fuel-economy
improvements by powertrain type as well as expected fuel costs for gasoline, diesel and electricity
until 2025. Apart from fueling costs, we have also considered expenditure on insurance, maintenance and
vehicle excise duty as the most relevant operating costs in our TCO model. We calculate that at the current
fuel prices (fossil fuels and electricity), battery electric vehicles save on average €900 per year in running
costs compared to a standard gasoline engine vehicle and €500 per year compared to a diesel. Plug-in
hybrids will still save the owner about €650-€750 per year vs. a petrol car, but a meager €300 vs. a diesel.

March 17, 2014
EVs are ~€900 cheaper to operate per year than a conventional gasoline vehicle
We calculate that at the current fuel prices (fossil fuels and electricity), battery electric vehicles save on
average €900 per year in running cost compared to a standard gasoline engine vehicle and €500 per year
compared to a diesel – see Exhibit 25.
Plug-in hybrids will save the owner about €650-€750 per year. Full diesel hybrids still offer a €600 saving
compared to a gasoline engine and €250 compared to a diesel. But the cost advantage becomes weaker for
gasoline full hybrids, which are estimated to save only about €100 in running costs compared to a regular
diesel ICE and €500 compared to a gasoline ICE. The largest cost delta comes not surprisingly from
different fuelling costs, but tax advantages for low-emission vehicles also contribute. Below we provide
further details on the different cost categories.
25
Exhibit 25
Electric vehicles have approximately a €900 p.a. operating cost advantage over gasoline ICEs and save €500 p.a.
versus conventional diesel vehicles
2,500
2,000
1,500
1,000
500
0
Annual Running Costs- C-Segment Vehicle (2013, Europe)
€2,400
€2,000
€1,900
€1,730 €1,670
€1,760
€1,500
Annual Cost (€)
Fossil Fuel Electricity Insurance Maintenance Taxes
Source: Ricardo and Bernstein research and analysis.
EVs are chasing a moving target - conventional engines will become more fuel efficient
Most discussions about running cost savings for xEVs focus on the reduced bill the driver has to pay at the
gas station and the amount of fossil fuel that can be saved. We have modeled just by how much xEVs can
realistically lower fuel consumption and what improvements are still in store for traditional gasoline and
diesel engines.
With an average consumption of 4.6l/100km, diesel powertrains are about 30% more efficient than gasoline
versions. Full gasoline hybrids come in just below, at 4.3l/100km. A diesel hybrid lowers fuel consumption
by 46% compared to the gasoline ICE reference powertrain. Once electricity is supplied from the grid,
savings cross the 2/3 threshold: Plug-in hybrids are expected to run on 2.3l/100km for a gasoline PHEV and
1.7l/100km for a diesel PHEV. EVs completely dispose of the need for a fuel pump.
By 2025 we expect that the projected technology changes2 enable gasoline ICEs to further reduce fuel
consumption by 35%. Diesel ICEs are expected to become 25% more efficient over the same horizon. Full
hybrids and plug-in hybrids will also benefit from general vehicle optimization and improvements to the
2 Compare section above on changes made to powertrain as well as the individual technology close-ups.

March 17, 2014
combustion engine. By 2025, we thus see gasoline ICEs using just 4.2l/100km, diesels 3.5l/100km, gasoline
and diesel full hybrids 3.0l and 2.6l per 100km, respectively.
Plug-ins will use between ~7.5kWh and ~15.2kWh of electricity per 100km
Plug-in vehicles offer superior liquid fuel economy but at the same time they also consume electricity from
the grid. Plug-in hybrids consume about 7.5kWh per 100km over the New European Drive Cycle (NEDC),
while the heavier diesel versions will require around 7.8kWh per 100km. Electricity-only powered electric
EVs will use around twice as much with an estimated consumption of 15.2kWh per 100km – a level that
can go up by c. 30% under heavy loads or if air conditioning/heating is used extensively.
Electricity costs are a small cost component: highest in Europe
European retail customers pay circa 18 cents per kWh (Source: Europe's Energy Portal, based on an average
consumption of 3,500 kWh/year), while U.S. and Chinese customers pay less than half of this level (Source:
U.S. Energy Information Administration). Looking ahead, there will be some sensitivity to electricity prices
but unless governments start taxing electricity like they do gasoline, it is likely to be a minor element in the
cost calculation.
Charging a pure EV for a year will cost ~€390
Running a pure EV will cost around €2.80 in electricity cost per 100km or about €390 for the full year – see
Exhibit 26 and Exhibit 27. This is less than one-third of the fossil fuel cost for a regular gasoline car and
about one-half of the cost of a diesel.
Plug-in hybrids will incur electricity costs of around €2/100km in addition to the fossil fuel costs outlined
above. Because of the relatively high electricity costs and low diesel fuel costs in Europe, this leads to the
situation where a diesel hybrid will cost less in fuelling costs than a gasoline PHEV – see Exhibit 26.
Electricity Cost in € per year
Europe (2010-2025)
2010 2015 2020 2025
26
Exhibit 26
Total fuelling costs in €/100km
Exhibit 27
Annual assumed electricity costs for plug-In vehicles (€,
Europe, 2010-25E)
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Fuel Cost €/100km
Fuelling Cost in €/100km
Europe
Fossil Fuel Costs (€/100km) Electricity Cost (€/100km)
800
700
600
500
400
300
200
100
0
Fuel Cost €/year
5. PHEV G 6. PHEV D 7. BEV
Source: Ricardo and Bernstein research and analysis. Source: Ricardo and Bernstein research and analysis.

March 17, 2014
In the United States, a full EV will cost just €1.22/100km — and even less in China
In countries with lower electricity costs, e.g. China and the U.S., diesel hybrids do not enjoy the same
superior cost position compared to gasoline PHEVs. Total fuelling costs (fossil fuel plus electricity) for a
gasoline PHEV will come up to €1.89/100km in the U.S. and €2.41/100km in China. This compares to
diesel hybrid costs of €2.17/100km and €2.69/100km, respectively. In the United States, full EVs will cost
just €1.22/100km to run, and even less in China – see Exhibit 28 and Exhibit 29.
27
Exhibit 28
U.S. fueling cost in €/100km
Exhibit 29
Chinese fueling cost in €/100km
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Fuel Cost €/100km
United States
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Fuel Cost €/100km
China
Source: Ricardo and Bernstein research and analysis. Source: Ricardo and Bernstein research and analysis.
Ignoring purchase price, EVs are much cheaper to run every day than gasoline ICEs
Based on the cost estimates and trajectories of operating costs in the key categories, we estimate that the
owner of a C-segment gasoline powered car is likely to spend about €2,400 per year – or €200 per month –
to operate the vehicle. About 50% of this amount goes toward fuel; the rest will pay for the insurance
premium (24% of total cost), maintenance (18% of total cost) and taxes (6% of total cost.). Changing to a
diesel version can lower this bill by ~16%. Hybrid versions will save about €500 per year for a gasoline
HEV (20% cost saving versus a gasoline ICE) and €640 for a diesel HEV (26% cost saving versus a
gasoline ICE).
Sourcing energy from the grid will only lower operating costs further. PHEVs achieve an additional 9%
reduction for the gasoline variants and 5% for diesel variants versus their non-plugged-in counterparts
(savings versus a gasoline ICE of 28% and 30%, respectively). Pure electric vehicles will cost about €1,500
to run – 37% lower than the gasoline ICE comparison.

March 17, 2014
28
Exhibit 30
Annual running cost for C-segment vehicle
2,500
2,000
1,500
1,000
500
0
Annual Running Costs- C-Segment Vehicle (2013, Europe)
€2,400
€2,000
€1,900
€1,730 €1,670
€1,760
€1,500
Annual Cost (€)
Fossil Fuel Electricity Insurance Maintenance Taxes
4. TCO conclusion: battery costs still need to fall below US$200 per kWh to be competitive
Despite a quicker pace of improvement in battery costs than we had previously anticipated, current full
electric vehicles are simply too expensive to be competitive. While they enjoy lower running costs (lower
fuelling costs, lower vehicle excise duties and in the case of electric vehicles also lower maintenance costs),
these are not sufficient to compensate for higher capital cost in virtually all realistic usage scenarios. The
key cost driver for plug-in hybrids and full electric vehicles are the battery packs.
But just how low do battery prices need to fall before plug-in vehicles become not only a low emission but
also a low cost option? Our sensitivity analysis suggests they still need to tumble dramatically. At current
fuel prices and with the related low running costs of conventional vehicles, battery costs would need to drop
by almost c.75% if EVs are to break even with gasoline ICEs – and even lower compared to diesel variants.
Battery costs would need to fall to under $200/kWh for EVs to compete with diesel engines in 2020
Full electric vehicles are the powertrain type most impacted by variations in battery costs. With a typical
pack size of 20-25kWh a battery pack currently costs around US$13,000, based on battery costs of US$550
per kWh. However, to break even with a gasoline or diesel C-segment vehicle, battery costs would need to
be a fraction of this price. In effect, battery prices need to drop to as low as 20-25% of today's realistic
level. The economic proposition of EVs may start to improve somewhat towards the end of the decade, as
the cost of conventional powertrains increases. But a lot rests on fuel prices. If fuel prices remain
unchanged, EVs may not be competitive unless costs fall to US$200 per kWh.

March 17, 2014
Exhibit 31 shows our best estimate of the battery cost levels EVs need to achieve if they are to become the
best powertrain option based on the lowest total cost of ownership. This assumes flat fuel prices but
increase costs of conventional powertrains. Full battery pack prices would need to be one third of current
levels by 2020 to be competitive. We stress again that this is a European example, where fuel prices are
higher than in the US. The comparison for TCO is tougher still in the US market.
29
Exhibit 31
We calculate that battery costs need to fall to below US$200 per kWh to be competitive with conventional cars
600
500
400
300
200
100
0
Required Battery Cost ($/kWh) to Make EVs competitive on TCO Option vs. Forecasted
Battery Cost (2013 - 2025)
Current 2020 2025
Battery Cost $/kWh)
Battery Cost ($/kWh) to make EV lowest TCO option Estimated Battery Cost
Our sensitivity analysis considers battery pack costs of €0-1,000/kWh
Our TCO sensitivity analysis in Exhibit 32 shows various battery cost scenarios. This is based on an
average ownership period of 4 years with a typical mileage of 14,000km/year as well as the full operating
costs for fuelling, taxes, maintenance and insurance. Fuelling costs are broken down into charges for
gasoline and diesel fossil fuels and any additional charges for grid electricity for the plug-in variants.
Vehicle depreciation ex battery values are calculated by first deducting the implied battery costs from the
vehicle price and then applying the same depreciation curve assumptions. Subsequently, battery costs in the
sensitivity analysis are added back by calculating the theoretically cumulative depreciation for battery costs
from €0/kWh to €1,000/kWh.
Battery costs need to fall to ~$200/kWh by 2020 for EVs to compete with traditional ICEs
Based on the current assumptions, traditional diesel engines provide the best TCO prospects for the average
buyer of a C-segment vehicle in Europe. Gasoline ICEs are ~€200p.a. more expensive – but we would like
to stress again that the results for individual European countries can vary, especially if vehicle excise duties
and fuel taxation vary significantly from those we assumed in our model. All other xEVs feature TCOs that
are already higher than those of gasoline or diesel vehicles, even if the battery pack were to be offered for
free.
If batteries could be procured for under US$100/kWh, then they would be competitive in comparison with
current internal combustion engine cars. But we believe with costs of conventional engines set to rise,
US$200/kWh is probably the likely 'breakeven' point for around 2020. Is this possible? Tesla insists it is.

March 17, 2014
Other OEMs are less convinced. But perhaps the industry can get reasonably close – and then a
combination of tax breaks and other incentives, fashion and environmental attitudes could swing the market
more significantly towards EVs? We believe it is increasingly possible.
Exhibit 32
Details for annual Total Cost of Ownership for a C-segment vehicle with seven different PT configurations and battery
costs of $0-1,000/kWh – we believe US$200/kWh is the key threshold for affordability and competitiveness
30
Annual Costs
Battery Cost Sensitivity Analysis (Annual Costs, 4 Year Ownership Period, 14,000km/Year, European Fuel Costs)
Battery Cost ($/kWh) 1. ICE G 2. ICE D 3. HEV G 4. HEV D 5. PHEV G 6. PHEV D 7. BEV Minimum Tech
0 5,335 5,167 5,368 5,402 5,392 5,478 4,993 4,993 BEV
34 5,335 5,167 5,376 5,412 5,431 5,517 5,123 5,123 BEV
68 5,335 5,167 5,384 5,422 5,470 5,556 5,253 5,167 ICE D
81 5,335 5,167 5,387 5,426 5,485 5,572 5,305 5,167 ICE D
108 5,335 5,167 5,394 5,434 5,516 5,603 5,409 5,167 ICE D
135 5,335 5,167 5,400 5,442 5,547 5,635 5,513 5,167 ICE D
162 5,335 5,167 5,407 5,450 5,578 5,666 5,617 5,167 ICE D
189 5,335 5,167 5,413 5,458 5,609 5,697 5,721 5,167 ICE D
2020 TARGET? 5,335 5,167 5,420 5,466 5,640 5,729 5,825 5,167 ICE D
243 5,335 5,167 5,426 5,474 5,671 5,760 5,929 5,167 ICE D
270 5,335 5,167 5,433 5,481 5,702 5,791 6,033 5,167 ICE D
297 5,335 5,167 5,439 5,489 5,733 5,823 6,137 5,167 ICE D
324 5,335 5,167 5,445 5,497 5,763 5,854 6,241 5,167 ICE D
351 5,335 5,167 5,452 5,505 5,794 5,885 6,345 5,167 ICE D
378 5,335 5,167 5,458 5,513 5,825 5,917 6,449 5,167 ICE D
405 5,335 5,167 5,465 5,521 5,856 5,948 6,553 5,167 ICE D
432 5,335 5,167 5,471 5,529 5,887 5,979 6,657 5,167 ICE D
459 5,335 5,167 5,478 5,537 5,918 6,011 6,761 5,167 ICE D
486 5,335 5,167 5,484 5,545 5,949 6,042 6,865 5,167 ICE D
513 5,335 5,167 5,491 5,553 5,980 6,073 6,969 5,167 ICE D
540 5,335 5,167 5,497 5,561 6,011 6,105 7,073 5,167 ICE D
CURRENT COST? 5,335 5,167 5,504 5,569 6,042 6,136 7,177 5,167 ICE D
594 5,335 5,167 5,510 5,577 6,073 6,167 7,281 5,167 ICE D
621 5,335 5,167 5,516 5,585 6,104 6,199 7,385 5,167 ICE D
648 5,335 5,167 5,523 5,593 6,135 6,230 7,489 5,167 ICE D
675 5,335 5,167 5,529 5,601 6,166 6,261 7,593 5,167 ICE D
702 5,335 5,167 5,536 5,609 6,196 6,293 7,697 5,167 ICE D
729 5,335 5,167 5,542 5,617 6,227 6,324 7,801 5,167 ICE D
756 5,335 5,167 5,549 5,625 6,258 6,355 7,905 5,167 ICE D
783 5,335 5,167 5,555 5,633 6,289 6,387 8,009 5,167 ICE D
810 5,335 5,167 5,562 5,640 6,320 6,418 8,113 5,167 ICE D
837 5,335 5,167 5,568 5,648 6,351 6,449 8,217 5,167 ICE D
864 5,335 5,167 5,575 5,656 6,382 6,481 8,321 5,167 ICE D
891 5,335 5,167 5,581 5,664 6,413 6,512 8,425 5,167 ICE D
918 5,335 5,167 5,587 5,672 6,444 6,543 8,529 5,167 ICE D
945 5,335 5,167 5,594 5,680 6,475 6,575 8,633 5,167 ICE D
972 5,335 5,167 5,600 5,688 6,506 6,606 8,737 5,167 ICE D
999 5,335 5,167 5,607 5,696 6,537 6,637 8,841 5,167 ICE D
1026 5,335 5,167 5,613 5,704 6,568 6,669 8,945 5,167 ICE D
Source: Bernstein estimates and analysis.

March 17, 2014
31
Exhibit 33
TCO battery cost sensitivity analysis (Europe)
31
29
27
25
23
21
19
17
15
TCO Sensitivity Analysis - Battery Cost ($/kWh)
Europe
0 70 110 160 220 270 325 375 430 490 540 600
TCO (€ 000)
Source: Bernstein estimates and analysis.
Battery Cost ($ per kWh)
EVs may still require heavy subsidies to be competitive for consumers
At a full battery cost of US$750 per kWh, governments – or OEMs –need to subsidize every electric
vehicle sold with around €10k in benefits to compensate for the extra expenditure the driver faces over the
first four year of ownership (see Exhibit 34). Battery costs of $500/kWh or $350/kWh could reduce this
amount to ~€7k and ~€5k, respectively – compare Exhibit 35 and Exhibit 36. Plug-in hybrids would
require less than half of this amount and full hybrids need an incentive of c. €1.5k. If battery costs fall
towards $200/kWh then EVs may be in business in their own right.

March 17, 2014
32
Exhibit 34
Subsidy requirement, Europe, battery
cost $750/kWh
Exhibit 35
cost $500/kWh
Exhibit 36
cost $350/kWh
Subsidy Requirement
Battery Cost $750/kWh
0.7
0.0
1.5 1.8
4.3
4.7
10.7
12
10
8
6
4
2
0
€ (000)
Subsidy Requirement
0.7
0.0
1.3 1.5
3.2
3.6
7.0
8
7
6
5
€ (000)
4
3
2
1
0
Subsidy Requirement
0.7
0.0
1.1
1.4
2.5
2.9
5
4.5
4
3.5
3
€ (000)
2.5
2
1.5
1
0.5
0
Source: Bernstein estimates and analysis. Source: Bernstein estimates and analysis. Source: Bernstein estimates and analysis.
Appendix: The essential parts of a modern automotive battery
4.7
Battery fundamentals
This report has focused on the cost reduction potential of batteries. To help readers understand the issues
better, we have also put together a brief summary of battery technology, components and chemistry. The
main performance characteristics of automotive batteries are largely determined by the chosen cell
chemistry and the battery management system (BMS), which comprises the electronics that control the
battery. Other key elements of the battery include busbars, which are used to electronically connect cells,
traction cables that connect the modules, and wiring harnesses to connect temperature and voltage sensors
from the cells to the BMS (see Exhibit 37).

March 17, 2014
Exhibit 37
Cells and the battery electronics (battery management system) are key elements of automotive propulsion batteries
33
Source: Axeon.
To ensure operational safety, current measuring devices track the amount of amperes during charging and
discharging while isolation monitoring devices test for electrical leakage and thus reduce the risk of an
electrical shock. The vehicle interface transmits information such as state of charge (SOC), battery voltage
temperature and current from the battery to the vehicle via a CAN-BUS.
Cells: the heart of the automotive battery
Battery cells are at the heart of the automotive battery – both in terms of cost as well as performance impact
– and most of the current research and development expenditure goes into improving both key dimensions.
Battery cells store energy chemically in their electro-active electrode materials. They are connected in
series and/or parallel strings to achieve the required power and capacity. Cells are made up of positive and
negative charged plates in an electrolyte. Electrical charge is then created via an electrochemical redox
reaction – see Exhibit 38. The electrical pressure created is known as the electromotive force (or voltage).
In a Lithium-Ion cell, the Lithium transfers from a high-energy state in the anode to a low-energy
configuration in the cathode to produce the required electric energy.

March 17, 2014
34
Exhibit 38
Batteries are electron pumps that convert chemical
energy Into electrical energy on demand
Exhibit 39
The three key cell components are the cathode, the
anode and the electrolyte
Source: Axeon. Source: Axeon.
Three key cell components: anode, cathode and electrolyte
The main components of a lithium battery cell are the anode, the cathode and the electrolyte (see Exhibit
39).
The anode is the negative electrode. During the discharging process (i.e., the electricity generation) it
releases electrons and Li+ ions to the external circuit and is oxidized during the process. The majority of
commercially available cells use carbon/graphite based electrodes, but metal or alloy versions are also
available.
The positive electrode – the cathode – accepts the released electrons and Li+ ions. The cathode is reduced
during the discharging process. Cathodes usually consist of a lithium transition metal oxide or phosphate.
The specific material used typically gives the name to the various existing Lithium-Ion chemistries.
The electrolyte separates the two electrodes and provides the medium for the charge transfer inside the cell.
The electrolyte does not participate in the chemical reaction and thus remains unchanged during the
discharging process. Lithium-Ion batteries typically employ a non-aqueous inorganic solvent that contains
dissolved Lithium salt (e.g., LiPF6 in propylene carbonate) as electrolyte. Electrolytes can be solid or
liquid/gel. Solid polymer electrolytes are less volatile, have a lower chance of failure because of leakage
and a lower flash point, but liquid variants have the benefit of lower internal impedance.
A short circuit is prevented by the addition of a porous separator that keeps the two electrodes apart.
Battery cells come in prismatic, cylindrical or pouch housings
Lithium-Ion cells are traditionally packaged in prismatic aluminum or steel cans (see Exhibit 40). These
have the advantages of good durability, heat dissipation and packaging density. Prismatic cells have high
energy densities and come in sizes up to 100 Ah.

March 17, 2014
Small cylindrical cells are produced in very high volumes and the casings are often designed around their
standard shape to reduce costs (e.g., for laptop applications). While the cells have high energy densities,
their bulky size means an inefficient use of space. Cylindrical cells come in sizes of up to 200 Ah, but sizes
larger than those used for typical consumer goods applications tend to be very expensive. Tesla's battery
packs use huge numbers of cylindrical cells, assembled together.
Pouch cells don't use a rigid metal case, instead they use metalized foil pouches to house the cells. This
makes them highly packaging-efficient (90-95%) and lightweight, resulting in a higher energy density on
the complete pack. Pouch cells can be custom-shaped depending on the manufacturer's application
requirements. Cells in pouch housings use polymers for the electrolyte (less prone to leakage). Because of
the low mechanical stability of the cells, battery pack housing needs to be more robust than in other types of
cell construction.
For automotive use, Lithium polymer pouches are increasingly considered a viable alternative to standard
prismatic cells.
35
Exhibit 40
Prismatic cell
Exhibit 41
Cylindrical cell
Exhibit 42
Pouch cell
Source: Axeon. Source: Axeon. Source: Axeon.
Battery cell chemistries
Key chemistry categories: Lead acid, Nickel Metal Hydride and Lithium-Ion
Lithium-Ion batteries are widely considered the most suitable choice for use in automotive propulsion. But
Lithium-Ion is not the only available chemistry – nor is there such a thing as "the" Lithium-Ion chemistry.
Choosing battery chemistry is always a tradeoff between specific energy (Wh/kg), specific power (W/kg),
costs and in most instances also safety. Exhibit 43 shows an overview of the most relevant chemistry
options.

March 17, 2014
36
Exhibit 43
Overview of specific power And specific energy characteristics of key battery chemistries
Source: Axeon and Electropedia.
Lead acid is a low-cost option
Lead acid battery chemistry has been used in automotive starter batteries for decades. The batteries consist
of a lead-dioxide cathode, a sponge metallic lead anode and a sulphuric acid solution electrolyte. Lead acid
batteries are highly commoditized and available at relatively low costs. They have a good power density,
decent high and low temperature performance, good charge retention and are comparatively easy to recycle.
On the downside, lead acid batteries are heavy and have poor energy density (see Exhibit 44). They also
have long charge times and typically a cycle life3 below 1,000 – too low for use in xEVs.
Nickel Metal Hydride: the preferred chemistry for hybrids for many years
Nickel Metal Hydride (NiMH) was traditionally the most popular chemistry for hybrid vehicles – such as
the Toyota Prius – and several million cars with NiMH-battery packs are now on the roads.
The cathode in this type of chemistry uses nickel hydroxide Ni(OH)2, the anode is made from a metal
hydride such as lanthanum and rare earths. The metal hydride provides reduced hydrogen, which then can
be oxidized to form protons. The electrolyte is alkaline (e.g., potassium hydroxide).
NiMH cells have a decent power density, long cycle life and minimal environmental problems. On the
downside, NiMH has a high self-discharge rate and relatively high-cost anodes (see Exhibit 44 for key
characteristics).
3 Cycle life is defined as the number of charge and discharge cycles a battery can perform before its capacity falls
below 80% of its initial available capacity. Alternatively, cycle life can also be interpreted as the total energy
throughput during the life of a cell.

March 17, 2014
Lithium-Ion chemistries provide the highest energy densities
Using Lithium in rechargeable batteries provides three times the energy density of other chemistries (again,
see Exhibit 44). Performance is expected to improve further as solid state options advance. Apart from
performance characteristics, most developments now focus on reducing costs by using cheaper raw
materials and manufacturing processes, improved fast charge ability and better environmental friendliness.
Lithium-Ion cells generally employ carbon-based anodes, but lithium titanate options are also available.
The compounds for the cathode vary significantly and largely determine the specific characteristics of the
main lithium variants (we look at these in more detail below). Therefore, much of the research and
development attention concentrates on finding alternative cathode materials.
37
Exhibit 44
Comparison of different cell chemistries
Property Unit of Measurement Lead Acid NiMH Lithium-Ion
Cell Voltage Volts 2 1.2 3.2-2.6
Energy Density Wh/kg 30-40 50-80 100-200
Power Density W/kg 100-200 100-500 500-8,000
Maximum Discharge Rate 6-10C 15C 100C
Useful Capacity Depth of Discharge% 50 50-80 >80
Charge Efficiency % 60-80 70-90 ~100
Self Discharge %/Month 3-4 30 2-3
Temperature Range ˚C -40 +60 -30 +60 -40 + 60
Cycle Life Number of Cycles 600-900 >1,000 >2,000
Micro-Cycle Tolerance Deteriorates Yes Yes
Robust (Over/Under Voltage) Yes (no BMS required) Yes (no BMS required) No (BMS required)
Source: Axeon and Bernstein research.
Lithium-Ion battery chemistry variants: Lithium Cobalt Oxide – LiCoO2
Lithium Cobalt Oxide (LiCoO2) is the most widely used cathode material for consumer goods applications
such as laptops and mobile phones. It provides decent specific power and energy and at a cell cost of $310-
$460 per kWh it comes with a lower price tag than most alternatives.
Durability is relatively weak (~500 cycles), but the biggest drawback is the poor safety track record.
Drawing too much current or puncturing the cell, for example in case of an accident, can cause thermal
runaway or even a fire. These characteristics make Lithium Cobalt unsuitable for automotive use – reports
of one exploding car battery would probably have a devastating effect on the prospect of electric mobility
for a very, very long time. Please also refer to Exhibit 45 for a comparison of the main lithium variants.

March 17, 2014
38
Exhibit 45
Comparison of main Lithium variants
Cell Chemistry Name Formula
Lithium Cobalt Oxide LiCoO2
Lithium Iron Phosphate LiFePO2 HEV 80-108 >1,000 800-1,200
Lithium Iron Phosphate LiFePO2 EV/PHEV 90-125 2,000 300-600
Lithium Manganese Oxide
Spinel
LiMn2O2 EV/PHEV 90-110 >1,000 450-550 3-5C cont. 255˚C 3.8 -20 to 50˚C
Lithium (NCM) –
Nickel Cobalt Manganese
LiNixCoyMnzO2 HEV 150 1,500 500-580
Lithium (NCM) –
Nickel Cobalt Manganese
LiNixCoyMnzO2 EV/PHEV 155-190 1,500 500-580
Lithium Titanate Oxide Li4Ti5O12 HEV/PHEV 65-100 12,000 1,000-1,700
Notes:
DoD Depth of Discharge
HEV Hybrid Electric Vehicle
PHEV Plug-In Hybrid
EV (Battery) Electric Vehicle
Main
Application
Cell Level Energy
Density (Wh/kg)
Durability
Cycle Life
(100% DoD)
Price $ / kWh
(Cell Level)
Power
C-Rate
Safety Thermal
Runaway Onset
Potential
(Voltage)
Operating
Temperature
Range
Consumer
Electronics
170-185 500 310-460 1C 170˚C 3.6 -20 to 60˚C
30C cont.
50C pulse
270˚C 3.2 -20 to 60˚C
5C cont.
10C pulse
270˚C 3.2 -20 to 60˚C
20C cont.
40C pulse
215˚C 3.7 -20 to 60˚C
1C cont.
5C pulse
215˚C 3.7 -20 to 60˚C
10C cont.
20C pulse
Not suspectible 2.5 -50 to 75˚C
Lithium Iron Phosphate – LiFePO2
Phosphate-based chemistries have inherently better thermal and chemical stability and are thus safer than
other Lithium-ion technologies. Lithium phosphate cells (LiFePO2) do not combust in the event of
mishandling during charge or discharge. They also do not release oxygen and are therefore much less prone
to thermal runaway.
Their energy density is lower than that of lithium cobalt, but they offer better durability and can support
higher currents. Lithium-Ion Phosphate batteries are considered a major improvement over cobalt variants
in terms of safety and environmental friendliness.
Lithium Manganese Oxide Spinel – LiMn2O2
Batteries using Lithium Manganese Oxide Spinel (LiMn2O2) in their cathode offer higher cell voltages than
cobalt-based chemistries and are thermally more stable, but feature a lower energy densities. Manganese is
environmentally benign and provides good higher-temperature performance.
Lithium (NCM) – Nickel Cobalt Manganese Oxide – LiNixCoyMnzO2
Nickel Cobalt Manganese Oxide (LiNixCoyMnzO2) batteries provide a good compromise of electrochemical
performance and lower costs. The cells have energy and power density superior to LiFePO2 and are
increasingly finding their way into high-energy-density packs for EVs.
Lithium Titanate Oxide – Li4Ti5O12
Cells that fall into the Lithium Titanate Oxide (Li4Ti5O12) category replace the graphite anode with one
made of lithium titanate. The cathode could be any one of the above described options, but most often they
are used in combination with high-voltage manganese-based materials.

March 17, 2014
Titanate anodes offer the benefit of wider operating temperature ranges and built-in overcharge protection.
They also result in much longer cycle lives, as the titanate does not react with the electrolyte, and thus
avoids forming a "choking" layer. Negative points are the lower energy density ratings and the currently
still very high costs.
39
Future developments concentrate on costs, durability and energy and power density
Cells are the fundamental building blocks of batteries, and the cell chemistry largely determines the key
characteristics of the battery pack. The development focus continues to be on:
Reducing cell costs by using cheaper materials & manufacturing processes.
Extending the cycle life of batteries, ideally up to the point where battery
durability matches that of the vehicle.
Improve performance characteristics, especially energy density for battery
electric vehicle applications and power density for hybrid applications
Chemistry development for automotive propulsion is still in its early stages and alternative materials are
currently being tested that have a much higher potential energy and/or power density of those available at
present – see Exhibit 46.
Exhibit 46
Cell chemistries currently under development could offer more than 10x the energy density – however, they will not
come close to that of gasoline
120 180 230 260 310 410
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
1,100
2,600
TMO and Silicon alloys: higher energy density than graphite anodes
Replacing the graphite anode with silicon-alloy materials could offer up to three times as high energy
densities – potentially at cheaper costs than standard soft, hard and semi-graphitized carbons. When silicon-alloy
anodes are combined with advanced Transition Metal Oxide (TMO) or silicate-based cathodes, the
resulting theoretic energy density could be as much as 310 Wh/kg (see Exhibit 46).
5,200
12,200
0
Lithium Iron
Phosphate
Lithium
Cobalt Oxide
Nickel
Cobalt
Manganese -
Graphite
Nickel
Cobalt
Manganese -
Alloy
Transition
Metal Oxide -
Titanate or
Alloy
Advanced
Transition
Metal Oxide
Zinc Air Lithium
Sulphur
Lithium Air Gasoline
Energy Density (Wh/kg)
Theoretical Maximum Energy Density of Different Cell Chemistries

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