Tesla aiming to break $100/kWh at cell-level later this year

One of the more interesting revelations to come out of the 2018 Tesla Shareholder Meeting  was updated information about Tesla’s current battery costs and projected reductions over the next 2 years.

Battery costs, coming through cutting edge cell chemistry, as well as more efficient production processes, are a key differentiator in the race to enable EVs to achieve overall price competitiveness with combustion engine vehicles. They are equivalent in importance to having efficient and cost-competitive combustion engine technology has been for the legacy automakers. It is well known that Tesla has the highest production volume and lowest cost of lithium-ion batteries in the world, but more detailed figures on these costs only emerge occasionally.

Thank you Joel

A question was put forward by shareholder Joel Sapp, via twitter — “has Tesla broken the seal of $100/kWh?” Initially, Chief Technical Officer J.B. Straubel gave a polite, interesting, but non-specific answer regarding the current costs. Then CEO and Chairman Elon Musk took the microphone and answered as follows:

We think at the cell level probably we can do better than $100/kWh maybe later this year… depending upon [stable] commodity prices…. [W]ith further improvements to the cell chemistry, the production process, and more vertical integration on the cell side, for example, integrating the production of cathode and anode materials at the Gigafactory, and improved design of the module and pack, we think long-term we can get below $100/kWh at the pack level. Which is really the key figure of merit for a car. But long-term meaning definitely less than 2 years.


The broader trend

It’s good to see Tesla is still both well ahead of the competition on costs today, and also still on track to keep improving their costs at around 15% per year. The most recent cost indication we had was in early 2016, when Tesla said they were already under $190/kWh cost at the pack level. Transforming cells, via modules, into the whole battery pack typically adds 30% cost per kWh on top of the cost of the cells alone. Here’s the graph of Tesla’s battery pack cost trend line, showing significant cost advantage over the industry average which is regularly tracked by BNEF:


This graph demonstrates that Tesla is around 4 to 5 years ahead of the industry average cost per kWh, a large part of the reason why the company can offer much more compelling and better value EVs than any of the legacy automakers. Indeed in the ‘small luxury car’ segment (or in the ‘mid-sized premium sedan’ segment depending on how you categorize things) they are already outselling combustion cars in the US.

Implications for more affordable EVs

Given that Elon Musk said that in 2 years time (2020) the pack level cost per kWh will likely achieve the cost point that the cell level cost will achieve later this year (2018) — and knowing the pack adds around 30% to the cost — we can see that Tesla remain on an approximate 15% per year cost reduction curve. Going forward, if they can maintain this trajectory (and there is every indication that they can and are determined to), they will pass pack level costs of $90/kWh in 2021, and $60/kWh in 2023.

This means that compelling and competitively priced EVs will soon be able to successfully compete in even lower priced segments of the auto market, and to continue from there to make more and more affordable EVs possible.  On this trend line, even the small economy car segment of the auto market (around the $15,000 price point) will see compelling EVs capable of all use cases, including long highway journeys, by 2023. At that point, EVs will have indisputably won the competition with fossil fuel power-trains.



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