Get Ready for Life Without Oil

Elon Musk and Tesla are making rapid incremental improvements to the lithium-ion battery.  Tesla’s planned “gigafactories” in Nevada and (possibly) New York will harness economies of scale to an unprecedented degree, building on improvements that have slashed battery-based energy storage costs during the past two decades.

Just to give you an idea of how fast battery costs have declined, here is a chart (via futurist Ramez Naam) showing how the amount of energy that can be stored in lithium-ion batteries per $100 rose from 1991 to 2005:

These data are from a 2009 study by Duke University.  Nor did storage efficiency stop after 2005; according to Naam, the cost of electric-car batteries declined by 40 percent from 2010 to 2013.  The Tesla gigafactories are projected to drive costs down at an even faster rate.

These declines, unlike the recent 50 percent drop in oil prices, are not temporary.  They are driven by increasing demand, which spurs technological progress -- not by reduced demand, which lowers the oil price.  In the case of oil, new technologies such as fracking allow us to get more oil, but always at a higher cost than before -- in the case of batteries, technology just keeps getting better and better.

A 2011 McKinsey & Co. analysis reported that battery prices would have to drop by about three-quarters to make electric cars cost-competitive at gas prices of $2.50 per gallon. But that was four years ago, and battery prices have continued falling.  We could see cost-competitive electric cars taking over the road in as little as a decade.  That’s how fast the cost trend is moving.

Of course, that will require extensive modifications to our transportation-energy infrastructure -- we’ll need to replace gas stations with charging stations.  That’s why Elon Musk has decided to allow other companies to use Tesla's patented technology free of charge.  When other car companies get in on the electric-car game -- such as General Motors, which just announced a new electric car, the Chevy Bolt -- the incentive increases to build more electric-charging infrastructure.  The more charging infrastructure gets built, the more incentive there is for consumers to buy electric cars, and so forth -- a classic case of a network effect.

Read more at Get Ready for Life Without Oil