- Elon Musk said during Tuesday’s “Battery Day” that Tesla will design and produce its own battery cells.
- The electric-car maker said the in-house cells will bring major cost savings and performance improvements that could lead to a $25,000 car in the coming years.
- While Tesla probably won’t hit its most ambitious projections, experts said, the company’s big-picture approach should pay off in the long run.
- Visit Business Insider’s homepage for more stories.
Tesla’s predictions tend to follow a pattern: The electric-car maker says it’s super close to hitting an ambitious milestone, falls short of its aggressive timeline, eventually makes meaningful progress toward its goal, and is cheered on by investors and fans alike.
To take one recent example, Tesla CEO Elon Musk long promised the company’s Model 3 sedan would come with a $35,000 starting price, but that option didn’t arrive until nearly two years after the vehicle’s release. Now, the Model 3’s starts at $38,000, though Tesla has said the $35,000 bare-bones option is available if you order it over the phone.
The latest promise in this ongoing cycle came during Tuesday’s “Battery Day” presentation, during which Musk outlined cost-cutting innovations he said will allow Tesla to release a $25,000 car in around three years. And though experts say that $25,000 car won’t arrive soon — Musk gave a similar timeline in 2018 — the company appears poised for significant improvements in battery technology that will keep stockholders happy, and competitors at bay.
“Tesla has a history of overpromising and underdelivering, but what they deliver still is pretty impressive,” said Sam Jaffe, the managing director of Cairn Energy Research Advisors.
Tesla’s cost-cutting goals may be unrealistic
During Tuesday’s event, Tesla announced a variety of innovations related to battery composition and manufacturing that the company says will cut battery-cell costs by 56% (without disclosing the price it currently pays for cells), while making them six times more powerful and five times more energy-dense, which could allow for up to a 54% increase in driving range for its vehicles.
While Tesla has until now relied on suppliers like Panasonic, LG Chem, and CATL for batteries, the automaker has designed and begun making prototype versions of its own cells. Tesla will continue to buy batteries from outside suppliers, but Musk said developing in-house manufacturing capabilities was essential to securing a supply for Tesla’s future vehicles. He noted the cost benefits won’t begin to kick in for 12 to 18 months, and that full savings are probably around three years away.
The cost reductions Tesla predicted stretch the limits of what’s possible, given the prices of the raw materials that go into batteries, Jaffe said, but the company made a strong case for why it thinks it can take big steps in that direction.
“It stretches the bounds of imagination,” Jaffe said of Tesla’s projected battery price cuts, “but they made a pretty good argument for why they think they can get there.”
Jaffe said each of the initiatives Tesla described sounded plausible, but it’s unlikely the company will deliver on all of them. Tesla’s plans to replace treated silicon with the raw version of the metalloid and implement a battery design that removes tabs (which connect the battery’s insides to the device it’s powering) appear close to production-ready. But the way the company described its work on dry electrodes (Musk likened electrodes to bookshelves that hold a battery together) made them seem farther off, Jaffe said. Even if all of Tesla’s initiatives aren’t successful, those that do pan out will make an impact.
“They will deliver something that is very significant,” Jaffe said. “There’s no question.”
Taking an ambitious, big-picture approach could pay off
Batteries represent a “huge” percentage of the costs involved in building an electric vehicle, said Michael Ramsey, an auto industry analyst at Gartner, which means if Tesla can hit its goal of cutting cell prices by 56%, or even less than half that number, it would represent significant progress in making EVs cost competitive with similar gas-powered models (EVs tend to be more expensive today).
“If they achieve a 25% reduction in battery costs at the scale they’re talking about, that is a pretty significant thing to do,” Ramsey said. “It’s likely that they are on a path to do that.”
Tesla probably won’t release a $25,000 vehicle in the next three years, Ramsey said, but the battery presentation outlined a path to making lower-priced vehicles more feasible. That Tesla has been able to consistently increase the range of its vehicles, a metric that relies heavily on batteries and the systems that manage them, gives the company credibility in predicting future gains, Ramsey said.
Tesla’s comprehensive approach to improving cell production and technology stands out in an auto industry that has so far relied on incremental improvements. Only General Motors and Volkswagen have taken a similar, big-picture approach, Jaffe said.
“When you sit back with a blank sheet of paper and say, ‘This is the car I want. How am I going to get there?’ Work that back all the way to the mine where you’re getting the lithium and the nickel, you’re going to end up with, I think, a much better-designed car, battery, and supply chain,” Jaffe said.
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