The quest for economies of scale is at the heart of many firm’s operational designs. Economies of scale justify everything from big capital investments to sprawling call centers. But just how easy is it to take advantage of economies of scale? That’s essentially the question raised by a recent Wall Street Journal article (High Battery Cost Curbs Electric Cars, Oct 17). The article focuses on the big battery packs necessary for hybrid and fully electric cars. The issue is not just academic. These battery packs are very expensive — by some estimates they account for half the cost of the car — and their cost is seen as one of the stumbling blocks in getting wider market penetration of alternative fueled vehicles. The Department of Energy has set a goal of having the cost of fall by 70% based on a 2009 base by 2014. Where are those cost savings going to come from? Economies of scale. Once Nissan rolls out the Leaf, Chevy the Volt and so on, battery production will increase dramatically and, the logic goes, cost will fall.
But will they?