Every major U.S. automaker will have a hybrid vehicle model available on the market by 2012. But even as crude oil prices spike past $100 a barrel, the high cost of lithium batteries in the U.S. will force companies like General Motors (GM) and Ford Motors (F) to maintain a higher price, undercutting competitiveness.
Hybrid vehicles use engines powered by electricity and gasoline to achieve higher fuel efficiency. The vehicles could drastically cut gasoline demand in the U.S. if they win widespread popularity, but the high cost of batteries--the most expensive part of a hybrid vehicle--keep their sales price high.
But GM, Ford and other U.S. auto manufacturers are at a disadvantage in growing their hybrid sales because they depend on importing batteries or licensing technology from China, Japan and other Asian countries that dominate lithium ion battery technology and production, said Menahem Anderman, president of research firm Advance Automotive Batteries.
"If there is a battery race, the U.S. is number four, behind China, Japan and South Korea," Anderman said at the IHS CERA energy conference Tuesday. "In the U.S., the industry is just getting started."
The country has a relatively slow start in developing technology that could cut the batteries' cost. That means that the government subsidies that make the cars affordable enough for some consumers will have to last for another eight years to keep the cars in the mainstream market, Anderman added.
China sits on one of the world's largest reserves of lithium and its manufacturing sector enjoys advantages of scale and labor costs. All together, that allows it to make lithium batteries for an average of $7,400 each, more than 25% less than the world average, according to global technology consultant Accenture.
Japan and South Korea, both of which having little access to crude oil, have also focused on developing lithium ion battery technology and manufacturing, reducing the batteries size while increasing their efficiency.
Toyota sold more than 140,000 of its electric-gasoline hybrid Prius vehicle in the U.S. in 2010.
In the U.S., General Motors plans in the next two years to build 175,000 Chevy Volts, its hybrid vehicle. When the company started developing the car about two years ago, it had to look to Asia for much of the battery equipment, adding time and money to the car's development, said Britta Gross, GM’s director of global energy systems.
"When we sourced the Volt, we had to go to South Korea to find lithium cell material," Gross said.
Still, improving battery technology and rising oil prices should help make hybrids a bigger part of the automotive market.
In 2008, the Toyota Prius, for long the best-selling hybrid vehicle, needed oil at $160 a barrel to justify its higher sticker price, according to investment bank Deutsche Bank.
By 2015, with improvements in technology, oil at $100 a barrel should be enough that anyone buying a Prius should save enough money from lower gasoline consumption to offset the car's higher sticker price, even without governments subsidizing purchases of the car.
"The consumer economics of both hybrids and electrics have improved meaningfully, and will continue to do so," Deutsche Bank said in a recent investors note.
Written by Ben Lefebvre