Op Ed: Falling Gas Prices vs Falling Battery Prices – Who Wins?


A quick look at the price of gasoline in the U.S. so far this year:

Gasoline prices in 2014Bloomberg Gasoline prices in 2014

The national average price of regular unleaded in September was $3.38 a gallon and falling. Gas prices are cheapest in the South and highest in the Northwest partly due to shale oil production in North Dakota and Texas.

Heat map of gasoline pricesGasBuddy.com Heat map of gasoline prices

This all starts with the price of oil, which makes up 66 percent of the cost of a gallon of regular gasoline. International crude prices have fallen 16 percent since the end of June, and U.S. prices have dropped more than 11 percent. Different parts of the country use different sources of oil to make gasoline. Most imported blends of light, sweet crude no longer come into the U.S. Gulf Coast, by far the biggest refinery base in the U.S.

Refiners are also getting ready to switch to the winter blend of gasoline, which is cheaper to produce altering gas pricing. Current trends could put prices in some parts of the country below $3.

Unexpected events could always alter the market. With the continued instability over attacks on ISIS, oil prices could certainly rise by the end of 2014.  The increase in U.S. production is given as the contributing factor for stabilizing the price of gas compared to previous years.  Saudi Arabia’s decision to defend market share, as opposed to cutting production to battle falling prices will also affect international pricing.

battery cost


A lithium-ion battery’s chemistry and electricity storage are governed by four key components – the anode, cathode, separator and electrolyte. Lithium-ion battery cells are then combined into larger modules that are packaged in housings, often referred to as the battery pack, which utilize cooling systems, electronic interfaces and controls.

EVs can be the cost catalyst for energy storage. EV sales perpetuate lower battery costs, leading to more cars sold, leading to lower batteries, and so on.

UBS lists the following as the key drivers for a reduction in total cost of the lithium-ion battery:

(1) Increasing manufacturing scale and productivity;

(2) Reducing the cost of battery materials and components;

(3) Increasing battery energy density and lifespan (minimising battery fade/maximising the number of charge cycles).

baterry costs

Where the cost go

Cell manufacturing alone contributes to nearly a third of the battery cost. Economies of scale will begin to take a heavy bite from this slice of the pie reducing significantly the cost. Cathode material developments are the second largest cost and for that reason have been a key area of focus. Still, cost savings in all areas of the battery are being optimised which contributes to the continuing falling price of the battery. Lithium-ion battery costs for automotive applications have already come down aggressively in the past three years, with pack costs having fallen from US$500/kWh in 2013 to US$360/kWh today. Umicore believes that this total pack cost will fall to below US$200/kWh by 2020. Tesla sees a pack cost of less than US$100/kWh within 10 years


The Competitive Effect

EV competitiveRemember when it was believed that the rise and fall of EVs could be controlled by the cost of gasoline? True enough that EV sales are stimulated by US gas averages over $4/gallon and sales are slowed by US gas averages under $3/gallon. However, the ever falling price of EV batteries will produce their own future in the market place. The UBS report does not provide all of the parameters used to calculate the graph above, yet it graphically depicts a promising path for the EV. According to the UBS graph, the market will see a noticeable shift in a competitive advantage at the  US$250/kWh threshold which is highly reachable in the near future.

Gas prices have fallen a few percent over the past few years while still fluctuating from summer to winter  to hide the winter inefficiencies and to feed market speculators  to reflect the cheaper winter blends of gasoline. Automotive batteries have fallen from over US $1000/kWh in 2009, to US$360/kWh and falling. The prediction of reaching US $200/kWh is based on current chemistries, while future chemistries promise further reductions in the years to follow. Furthermore, the above graph shows that US $200/kWh batteries ends the effect of lowering gas prices on the EV market.

Our shift has moved from watching gas to watching the growth of battery factories which directly affect the economies of scale. Falling or rising gas prices will still affect global markets, but nothing like the effect of batteries under US $200/kWh will affect automotive.  At least for some, it is  increasingly becoming a lesser parameter in determining the future of light duty autos that they operate.

Calculating the pricing of gas is as difficult as predicting the weather, while the long term climate for batteries looks promising.

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46 Comments on "Op Ed: Falling Gas Prices vs Falling Battery Prices – Who Wins?"

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I’ll buy that for large market penetration you have to win the cost argument (price + fuel + maintenance). That said, once you’ve driven an ev it’s hard to think many would go back, and I’m not talking about evangelists. The driving and day to day convenience of an ev is priceless.

No fumes, no noise, no vibrations, less maintenance, less repairs, less replacements, less costs, no smells, NO PETROLEUM. Amen! 🙂

Just to lend credence to the figure 23 chart, the Argonne paper I did an article on agrees almost exactly.

70% for materials and purchased items
30% for manufacturing

Just looking at the summary plot fig 22 we are at roughly 350$/kwh pack price and 3.50$/gal fuel which puts us in hybrid -electric affordability.

At 200$ pack price, even if gas goes to 2.75$/gallon we are in the electric vehicle competitive area. So it does appear from this plot that the pack price is a stronger variable working in our favor.

It would be interesting to run cost of ownership numbers for a comparison.

I wonder why there is an inflection point at a pack price of 250$/kwh??

Fig 22 is stupid, IMO, unless EREV isn’t counted as a PHEV.

Even at $150/kWh, it takes $8000+ of batteries to make a 200 mile EV. So you could save $5-6k on the battery back by going PHEV/EREV, and 30kW range extenders are way cheaper than that.

but still Mint,

you have to agree as batteries get cheaper the need for a RE diminishes.

I think the Mitsubishi i-miev price cut of $6000 dollars was the first sign of falling battery prices. In that I remember watching a program on the i-miev and the car company said that 40% of the car’s cost came from the battery pack. Along with that I think the price of the i-miev’s and the leafs where somewhat over bloated in the early years and these price cuts helped work on that.

As of now what is slaughtering and holding back Mitsubishi i-miev sales is it’s crappy 62 mile range. Other wise the car is fairly decent. If Mitsubishi is going to keep producing the Mitsubishi i-miev they have to find away to raise the battery capacity to a solid 100 mile range. In that they could use steady falling battery prices to make this happen.

They are using all the batteries they can make in the Outlander PHEV, which can generate a profit.

Without subsidies the price of an A class city car with batteries is many thousands less than for a small city car using petrol.

Here in the UK the price of the E-Up is something like £8k more than the petrol one – after the $5k Government subsidy.

Many of us thought that petrol even in the US would be at around $5-6 gallon by now.

That would have put the sales of the Nissan’s and Mitsubishi’s at a different level.

That did not happen, and Mitsubishi has rightly adjusted its plans, which are now working well.

Dr. Kenneth Noisewater
Ideally, you size the battery and motor for peak performance kW, and the range extender for mean kW use (with a bit extra for extended hill/mountain). So, for example, if you want a really nice, fast, smooth and efficient sedan, it should have ~300kW of a power budget to spread between 2 or 4 motors. Therefore, at a 6-7C draw, you’ll need ~40kW of battery, with ~30kW of it usable. That gives you about 100mi electric range and full performance on electric only. However, with good aerodynamics, you may find that on a given wide-ranging test cycle the average power output (kWh output / running hours) is closer to 35-40kW. So, size the range extender to 60-75kW in order to accommodate average power use plus some margin for hills, higher-speed runs, etc. Might even be worth doing as a Atkinson/Miller hybrid motor, which runs in Atkinson cycle for low-demand periods (such as <=70mph highway cruising) and uses its turbocharger as a generator instead of for providing forced induction, but when hills show up or demand increases, can switch to Miller cycle by boosting air pressure instead of generating (though it would still generate power instead of having a blowoff valve).… Read more »

There is a restriction on exporting crude oil from the U.S.; but, not on finished products, i.e., gasoline, diesel. So, the U.S. companies must refine the oil and export finished fuels.

The oil companies are lobbying hard in Congress to allow the direct exporting of crude oil. If they succeed, you can bet on fuel prices increasing. But, the positive is with an increase in hydrocarbon fuel comes a pricing advantage for electric cars which could help speed adoption of BEVs.

The United States is currently exporting two to three million barrels of diesel and gasoline to Europe and Brazil along with other countries that don’t have oil refineries. The US refineries like this in that the fracking boom along with falling US demand has made exporting finished fuels overseas very popular now.


I know supply and demand is apart of this but to me this is iterating in that we try to save oil and gas but instead export our surplus. This makes it where were not saving any fuel.

The only way to surely kill this is to have a EV herd of several million EV’s on the roads in the US and other countries to shut this thing down.

Dr. Kenneth Noisewater

To be fair, there’s a lot of jobs involved in refining, so barring exports of raw materials but allowing refined ones makes a bit of economic sense: the US workforce gets to capture the value-add.

And if overall demand is down, then prices go down, so production gets cut to keep the prices up, which is the natural way to reduce oil use, instead of relying on government diktat.

BTW, the limits on natural gas exporting have kept US prices low, which directly helps people with home heating needs as well as industrial plastics and chemical manufacturers keep jobs in the US. Of course, with thorium molten-salt reactors, you would get plenty of cheap power for thousands of years (or more), cheap enough to extract hydrocarbons from atmospheric CO2 and desalinated water which could then be run in engines or used as chemical feedstock. But too many greenies are too far up their own asses to find their way back to reality.

Great article.

I’d also be interested in the fall in weight and size of the batteries, as that is germane to car manufacture as well.

However, I continue to believe that the biggest issue with EVs right now is the ability to penetrate the hardest known substance in the universe, namely the gray matter generally found between ears.

EVs at 75-100 miles range are practical now. At 150-200 miles range with proper charging, they are fully capable of replacing gas cars. At 300 miles range they are overburdened with the weight and cost of the battery in a useless attempt to “reproduce” the range of gas cars.

Useless because EVs are not gas cars, nor do they need to behave like them. Gas cars don’t reload with gas overnight in your driveway.

The higher the range of a EV the more useful it is. In that right now the DC fast charging infrastructure in most places is horrible and unpredictable. Such as I could get away with trying to use a 80 mile range EV now but if I change jobs or move it could easily change due to the low range on it. Also as of now unless they put in a system of several dozen DC fast chargers in my area I can’t really go on any road trips in a EV.

Dr. Kenneth Noisewater

200mi EPA is barely adequate for intercity travel, and at 100kW is just a bit better than inadequate for those trips. For 60kWh 200mi is a bit optimistic depending on how much of a buffer you have in your state of charge for over/undercharging, 75kWh is more realistic, with 80% of it usable. 135kWh is a safe charge rate for a 75kWh battery, but you’re still stuck waiting on a full charge for half an hour plus or minus rampup/rampdown.

There are many ways that batteries can develop in the coming years, it’s hard to see what research today will turn into production-ready engineering tomorrow, so the most prudent course of action is to do what Tesla is doing: improve the current chemistries and plan around them and their development track, while keeping an eye on whatever may show up that can be sampled and tested to destruction. The Stalin philosophy on battery design has served Tesla well, and I don’t see anyone leapfrogging them anytime soon with something that they can’t adopt themselves in short order.

I knew it Oil prices are Wall Street scam, war in the middle East, Irak, Saudi Arabia, Kuwait, Qatar involved and the Oil price is falling. Before tesla Oil prices skyrocketed because a possible storm in the Mexican golf, or summer was comming, Venezuela has protesters on the street in general any BS.

Oil prices will go back up once OPEC stops bickering. They can make prices go up $10+ (and probably increase profit by 20-50%) with only a 5% cut in production.

For any other commodity, this would be illegal collusion, but we’re addicted to oil and OPEC can do what it wants to.

Once people get used to cheap gas any rise in price will cause EV sales to spike.

With Fords new F150 dropping 15% of its weight. If sales next year are the same as this year(700,000) this is the equivalent of taking 100,000 Full sized trucks off the road a year. Tesla is not on the oil companies radar yet.

Tesla and Musk are enemy number one to Big Oil.

There is a theory that I have that after the EV1 program got destroyed gas prices where allowed to go up unchecked. In that the oil companies had a monopoly over what fuel we use to power our cars. When Tesla came into existence 2009 it sort of posed a threat but not really. But when Tesla started threatening to build the model S. The oil companies where sort of worried. At the same time Nissan built the Leaf to get to the mass market for Tesla did. But when the leaf and Model S got into pull production there was now a massive cinder block sitting on top of oil prices to keep them in check. In that think of how many leafs and Mitsubishi i-mievs could have been sold when gas was $4.30 a gallon across the country.

I think as long as we have a healthy growing herd of EV’s for sale that people can buy it will keep gas prices in line. In that if gas prices start rising $0.10 to $0.40 a week like they did on the run to $4.00 gas it will get people to run out in a mass to get EV’s.

Thanks for the simplification, Mark. Like complex gas prices, electric prices in the northeast are jumping just south of the gasoline equivalent area, of $.30-.40/kwh, on-peak. If electric rates get to where they are in Germany, it won’t matter what happens to battery prices.

This may be an overstatement, on a national average of about $.12/kwh, but in some regions there are regulators and industry participants who think higher prices are good for them. I call it “rot”, or perhaps rotten grey matter.

pj I’m assuming from this you live in the NE. I grew up back there. but now

I guess we are just lucky here in the SW. One can always go solar PV. The higher the utilites raise their rates the better solar PV looks.

At some point if the utilites get too carried away with net metering charges and batteries get cheaper people will just be able to cut the cord.

Good. Price Gouging leads to a Direct Competitor: Solar Energy for the win.

Look at Apple’s profit Margin: 22% = Samsung Guaranteed marketshare.

Look at Verizon 6 Tier’ed pricing, that only goes to 500 mbps, guaranteed a Loud Happy Embrace of Google Wire.

Dr. Kenneth Noisewater

It’s all fun and games until an oligopolistic coterie of big businesses capture the government and raise barriers to entry for new market competitors.

Which, in many if not most places, has already happened long ago regarding the cable companies, and pretty much also happened to deregulated power (while regulated power has had the govs eating out of their hand for decades).

Why is the cell mfg. dropping so much. Automation has already done a lot to automate the per cell costs and it drops far more thru 2025 than i think anyone in manufacturing would estimate. Graph seems very much utopian.

“The world consumes two barrels of oil for every barrel discovered”

This is a direct quote from Chevron Oil.


A number of oil watchers seem to think that new shale gas discoveries have been grossly exaggerated, since production tends to deteriorate rapidly in these wells after 3-5 years.


The Fat Lady may not be singing Big Oil’s Swan Song just yet, but she’s busy warming up just behind the curtain.

The fat lady has already sung at ‘The Oil Drum’ who were making those arguments for years. The site is closed now, as there is no getting over that they were directly and absolutely wrong, and that oil production then started a climb in the US. I was one of those who thought that there was going to be at the minimum a severe bottleneck in production about now, and that we would have petrol at $6/gallon, if not more. That did not happen, and the interval has allowed a host of other technologies to mature, from gas to liquids to the tar sands, and of course battery electric and PHEV cars which also have the effect of putting an upper limit on oil prices, as the major manufacturers are now in a position, or will be within 5 years, to ramp up production of electric, natural gas etc cars in relatively short order. Gas to liquids, and coal liquifaction do not make me a happy man, as I think that the overwhelming scientific consensus says that higher CO2 means higher temperatures, but I have no serious doubt that we can carry on producing vastly more liquid fuels one way… Read more »
Electric Car Guest Drive

Well said. What will ensure we do move on to other technologies is the regulatory requirements that will be enacted after the first wave of crop failures. California is the canary.

Firstly, agreed, how did it not happen..

The fly in that ointment is OPEC – if they -could- decide to do with one less gold-plated Aston DB etc. per annum they could easily shut taps slightly beyond any latest discoveries, knowing with malice aforethought that their reserves will be worth Much more for their children and children’s children.

I am in constant wonder that this has not already occurred since the unassailable conclusion that was the 1970’s.

Transport can’t run on wind/solar, now or the near future decades. Raise transport costs and watch the economy shrivel like your sumthin sumthin as you drop through a hole in the ice.

Dependence on oil is dependence upon your government to achieve agreements with the countries that Have oil.

The problem is that all these new technological breakthroughs in oil and/or drop-in fuels production, are expensive just like oil production from tar sands, shale oil, etc. here’s something from Oil Price.com “Apart from the boom in US production and a strong loonie – as the Canadian dollar is referred to by locals – Alberta’s oil sands players are also threatened by escalating labor and equipment costs. A recent report by research house Wood Mackenzie shows break-even costs for building new steam-driven [in-situ] projects is in the $65 – $70 a barrel range. Mining developments – the truck and shovel method accounts for a fifth of all projects – need at least $90 – $100 oil. Existing projects in Alberta can still make money at $45 a barrel. Existing projects are not threatened, but new projects are. And here’s a Globe & Mail report from June 4, 2012. “Oil sands projects display some of the highest break-evens of all global upstream projects,” the firm said. “The potential for wide and volatile differentials could result in operators delaying or cancelling unsanctioned projects.” http://oilprice.com/Energy/Crude-Oil/Have-the-Canadian-Tar-Sands-had-their-Day.html The cost to discover, produce and deliver oil to the customer is increasing. If a barrel of oil… Read more »
World wide oil production basically flat. Here’s s graph from the EIA showing oil production in the period from appx. 2004 to 2014. World wide production is basically static and not increasing significantly, except for U.S. shale. Check out the graph for North Sea oil fields which shows a steady, unmistakable decline in production over this 10 yr period. http://www.resilience.org/stories/2014-03-26/world-crude-production-2013-without-shale-oil-is-back-to-2005-levels The real measure of where oil is headed is in discovery versus consumption figures not on production, because the Saudis and the rest of OPEC have significant untapped reserves that could manipulate world wide oil supply (production) simply by turning the faucet on or off — at will, which they have done on a number of occaisions. That’s why OPEC has agreed amongst themselves on internal production quotas to prevent cheapening the price of oil through over supply. The capital expense for each extracted barrel is increasing for oil companies. The energy used to extract three barrels of Canadian tar sands oil is equivalent to a barrel of oil (energy equivalent) or 3:1. In comparison, the energy expended to extract 30 barrels of conventional oil back in 1970s was only about 1 barrel of energy expended to gain 30 barrels… Read more »

Oil is getting more difficult and expensive to find. If you combine that with the fact that there is only one (1)barrel of oil being discovered for every two (2) barrels that are consumed, it makes it likely that oil prices will only continue to go up over in the long term.

What all this really means is you are not going to see gas go back down below $2.00 a gallon. Also I think the way the current oil system is set up I don’t think it will let gas go below $2.60 gallon.

What supports this is I remember reading news that OPEC is planning on cutting back Oil production by 500,000 to a million barrels of oil a day to try to keep oil prices from falling any lower. This is oddly a good thing in that it keeps more oil in the ground. But over all it will raise oil prices across the board. The good news is we can off set these losses by putting more EV’s on the road.

Just falling battery prices will not be enough alone. I don’t think we will see sub $100/KWH batteries. Rising gas prices will be needed to help move people over. But they will come. Decline rates will start slowing down the shale boom

The other way to look at this graph, is to flip the analysis over and see what impact battery prices will have on gasoline prices.

As battery prices drop, and become more competitive with gas, gas prices will be forced down by competition.

Gas car fanatics should all be pro-EV, because it puts downward pressure on the prices for gas that they buy.

If gas prices actually tumble, then there would be no excuse anymore not to finally increase the gas tax.

I was reading that gas prices physically could only go down to $2.50 and would go back up. The reason why they can’t go back down to $2.00 a gallon or $1.00 a gallon. Is that the bulk of the new oil used to make the gas comes from very expensive oil producing methods that need at least $70 to $80 dollars a barrel to be economical to produce.

What instead what would happen is the battery costs would keep dropping and dropping. Gas prices even if gas was fighting for it’s very existence as a fuel would not be physically able to follow it in the price decline.

Great article Mark!

I would hope it is safe to say that battery prices will decrease faster than ICE improvements, so that plug in vehicles of all stripes will continue to be more and more viable.

I am no expert but I sat in on a fairly detailed presentation of the fracking industry in PA. It was mentioned that the Marcellus Shale reserve has something like 10 years worth available, as opposed to the usual 2-3 years. Typically(I guess in the past) after the reserve was tapped, you’d have another year and then drastic reduction in production. Apparently, not so in PA and the other Marcellus Shale states. That’s(at least partly)why it galls me so much that our governor decided not to charge the extraction companies the fees that all the other states charge—cost us many millions in tax revenue).

In relation to the aspect of falling gas prices, there is also the affect they have on the internal American business of extracting oil as well. The lowers gas prices make the fracking within the United States more difficult with international prices going down. It adds to the fact that the lower battery prices would in a way benefit more in this aspect of of conflicting markets.