One of the most promising battery types under development for use in both pure electric and hybrid electric vehicles is lithium ion. These batteries are well on their way to meeting the challenging technical goals that have been set for vehicle batteries. However, they are still far from being able to meet the cost goals. The Center for Transportation Research at Argonne National Laboratory (Argonne) undertook a project for the United States Department of Energy (USDOE) to estimate costs of lithium ion batteries and to project how these costs might change over time, with the aid of research and development. Cost reductions could be expected as the result of material substitution, economies of scale in production, design improvements, or development of new supplies. Argonne's work for USDOE focuses on the initial capital costs of the batteries, which are estimated by examining the materials and processes required; Argonne extended the analysis to include battery operating costs, as well as costs and revenues from recycling, to provide some insight into the costs over the entire life cycle of the batteries for both pure electric and hybrid electric vehicles. The most significant contributions to life-cycle costs are found to come from battery materials.