San Francisco -- Lithium-ion batteries might not decline in price as fast as computer processors or memory, but an unusual combination of circumstances is nonetheless allowing for massive discounts at the moment.

Better Place, the company currently building car-charging and battery-swapping networks in Israel and Denmark, is purchasing batteries for cars at $400 per kilowatt hour for delivery in early 2012, according to company executives. Better Place and IBM held an informal dinner briefing with reporters last night in San Francisco. (IBM and Better Place? What are they doing together? That was a question everyone had on their minds.)

Compare that to the situation in October 2007. Then, battery packs for EVs sold for around $1,000, according to Lawrence Seeff, vice president of global alliances at Better Place. Thus, in a little under three years, the going price has declined by 60 percent. Earlier this year, Better Place's Jason Wolf said that EV batteries were approaching $500 a kilowatt hour. (Battery pricing and grid charging will be one of the main topics of The Networked EV taking place November 9.)

That's good news for the EV business. The high price of batteries has been one of the major problems for the electric car industry. The Nissan Leaf, for instance, has a 24-kilowatt-hour battery. If batteries cost $1000 a kilowatt hour, the battery alone would cost $24,000 and make it near impossible for Nissan to profitably sell the car for $32,800 before incentives. At $400 a kilowatt hour, the battery pack would only cost $9,600, according to multiplication conducted by Greentech Media.

Low prices, of course, are also good news for Better Place. Under its business plan, Better Place will own the batteries that power the cars on its network. Consumers will then pay the company a monthly fee for the batteries, electricity and any other ancillary services. Cheaper batteries thus will lower the company's capital and operating costs: the expense of owning all those batteries has been one of the big question marks hanging over the fate of Better Place.

Then again, cheaper batteries takes away some (but not all) of the need for consumers to lease the battery in services like this.

The prices are not likely to be plummeting strictly because of innovations with battery cells or packs. Lithium ion batteries have been in volume production since the early '90s and are a somewhat mature technology that progresses at a incremental rate. Many of these current gains likely come from higher production volumes, according to Dr. Winfried Wilcke, senior manager of nanoscale science and technology at IBM. Manufacturers ramping up for volume production is not like chip makers turning the crank on Moore's Law: the process is not guided by engineering principles and may not repeat itself. Hence, it is uncertain whether or how long the pricing trend will continue. The Department of Energy has set a goal of getting batteries for cars down to $250 a kilowatt hour.

Other interesting tidbits from the dinner:

--IBM hopes to have a 10-kilowatt-hour prototype of a lithium air battery in about two years. Lithium air batteries will, ideally, hold far more energy per unit weight than conventional lithium-ion batteries, said Wilcke, and even more than zinc air and lithium sulfur batteries. Lithium air batteries may also be more amenable to recharging than zinc air batteries. Nonetheless, commercialization could take years.

"We have just left base camp" when it comes to lithium air batteries, he said. IBM last year described a membrane that it hopes to insert into lithium air batteries.

Lithium air batteries, Wilcke added, will be needed to mass produce EVs that can compete more directly with gas-burning cars. Even with the recent price declines, "the steady state will not get us there," Wilcke said. In terms of useable energy density, lithium-ion batteries are seven to eight times worse than gasoline. (Side note: a kilogram of lithium ion batteries has a density of 100 to 200 watt hours, while kilograms of zinc air, lithium sulfur and lithium air have densities of, respectively, 400 watt hours, 500 watt hours and 1,700 watt hours.)

--Seeff said that it costs Better Place about $150 million to build a "cell," i.e., a network of charging and swapping stations complete with batteries to serve a major metropolitan network. Better Place only needs about 20,000 to 30,000 customers to break even. Put another way, that means Better Place needs to get $7,500 to $5,000 from each customer in a minimal situation over a four-year period to break even. That means in a cell with 30,000 customers, Better Place needs to get $1,250 per customer per year. Doubling the number of users drops that to $625. Whether that's perilous or promising is up for you, my readers, to debate. There is more on Better Place's financial strategy here.

--Better Place will have two to three kinds of batteries in its network. Different batteries will help get around the worry that swappable batteries will lead to homogenization. Ford, Nissan, General Motors, Volkswagen and others have rejected battery swapping to date due, among other reasons, to the fear that swapping would detract from a car's distinct design and personality.

--Better Place will formally launch its services commercially in Israel in the second half of 2011.