YOUR NEXT CAR WILL BE A VOLT:

Musk and Tesla haven't invented the arc reactor, but they are making rapid incremental improvements to a more down-to-earth technology -- 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:

That data is 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.

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