Electric Car Batteries Might Not Get Cheaper

St. Paul economist and writer Edward Lotterman argues that diseconomies of scale could result in 'an increasing cost industry.'

Published: 30-Dec-2010

Sales of hybrid cars continue to grow -- even our neighbors bought one. But the increasing popularity of hybrids doesn't necessarily mean that the costs of making batteries for them will get cheaper. In fact, it could result in what economists call 'an increasing cost industry.' This is an uncommon situation.

More often, changes in per-unit average cost come as a result of a larger or smaller production plant. If average costs fall as a factory gets bigger, economists say there are "economies of scale."

The opposite situation where unit costs rise as a factory or company get bigger is "diseconomies of scale." These were common in Soviet industry when the Kremlin made a fetish of having the world's largest steel mill, truck factory or whatever. And, considering the companies as a whole, GM and IBM in the 1970s both probably were examples of diseconomies of scale.

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