The energy market is constantly transforming and advancing the way we use everyday products. Very soon, the internal combustion engines we’ve been accustomed to for over 100 years, may be replaced. The lithium-ion battery is becoming increasingly cheaper to manufacture making it near competitive with our more familiar engine design.

The cost of Lithium-ion batteries has decreased 65 percent since 2010, back when they cost over $1,000 per kilowatt-hour. These batteries now cost under $350 and some companies are finding ways to produce them for even less. Many predict that lithium-ion batteries will be cost competitive with internal combustion engines once the new age batteries are as cheap as $100 per kilowatt-hour, a plausible figure for 2020.

RW Baird estimates Tesla pays significantly less than the rest of the market for their batteries, somewhere between $150-200 per KWh. Companies that can manufacture lithium-ion batteries at this discounted level have a competitive advantage over others. Manufacturers’ main focus is to reduce these costs that comprise the majority of their operating expenses.

The reduction in prices for lithium batteries is partially due to the access and substitution of raw materials vital to production. By increasing the level of production, facilities are becoming more efficient and inexpensive. It also helps that corporations are investing enormous sums of capital into companies like Tesla to make their products more conventional.

Advanced batteries like the ones in question could also consequently transform the stationary energy storage industry. A report by McKinsey & Co. sees energy demand rising 3 percent with the growing need for consumers charging their cars. However, increased storage ability could lead to consumers accumulating power overnight during off-peak hours, hurting electric company profits. Higher performing batteries also mean increased production from natural resources at distributed generation sites.

There is a relationship with electric vehicles and the software used inside them. More powerful computers are necessary for the incorporation of more sophisticated features and altogether integration. The semi-autonomous cars currently in development by companies like Uber will see a correlation between their product’s progress and battery improvement. Related: Can Saudi Arabia Scramble Out Of The Pit It Dug for Itself?

Wolfgang Mack at Capacitor Sciences estimates that lithium-ion batteries have already reached 87 percent of their potential storage capacity in markets. To continue advancing would require an influx of increased capital for an incremental amount of progress. There is a high likelihood these batteries will become cheaper, but larger is implausible. That is why Mack’s company has begun developing batteries that they claim can be ten times as dense, meaning a far vaster potential for capacity.

The hasty replacement of internal combustion engines will reduce the demand for oil by 13 million barrels per day. The market for crude oil is already struggling with excess supply creating a growing concern for majors wishing for a price surge.

Overall, the development of lithium ion batteries will benefit electric car producers considerably. Uber, Tesla and other members of the automobile industry will enjoy the reduced costs of the most expensive component of their products and will expect higher returns on their shares. Oil prices will continue to fall short, showing less prominence in the market while power will initially grow in value but likely trail off in the long run, with increased storage of power generated from natural resources.

By Michael McDonald for Oilprice.com

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