Battery Costs Falling, Part 2 - Tesla Motors

In the first part of this series, we reviewed falling electric vehicle (EV) battery costs that are closing the gap to absolute cost-parity with traditional internal combustion engine counterparts. Note: we recommend you read this popular blog post as introduction to this topic -- it's a helpful precursor to our follow-up post here.

Some have argued that – already (without factoring in relatively high EV battery costs) – the Tesla Model S has proven that Tesla Motors has achieved cost parity with its immediate competition. Last year, UBS found the 3-year total cost of ownership (TCO) of a Tesla Model S to be similar to that of a comparable internal combustion engine car such as an Audi A7, in places like Germany.

Source: United Bank of Switzerland (UBS)

And, more recently, Investopedia applied its Teslanomics to compare the Tesla Model S economics to its premium sedan competitors (here in the U.S.). They found that “for the same price as a Lexus or an Audi, you can purchase a Tesla Model S and benefit from the convenience of not having to fuel up, the peace of mind and extra time that comes from not having to worry about maintenance issues like oil changes or buying new filters. Couple that with the fact that the car seats seven (or has more storage space) and its claim of having ‘the highest safety rating of any car ever tested’ and the Tesla’s Model S is a strong economic choice for today’s consumers.” And, according to another compelling analysis, the Tesla Model S cost of ownership almost beats out the Honda Odyssey in value.

But as we noted in our prior post in this series, the real catalyst for electric vehicles (and Tesla Motors) to compete on a “bigger stage” with internal combustion engine vehicles remains the forcing function of EV battery cost reductions... especially for mass market, lower-priced vehicle segments. This is Tesla's vision for its forthcoming Model 3. With Tesla’s Gigafactory, CEO Elon Musk has stated he’s “absolutely certain” Tesla can reduce the cost of its batteries by 30% in order to launch the much-anticipated Model 3 at a $35,000 price point with 200 miles of range. 

However, a lot has happened since those initial Gigafactory projections were stated. Recently, Elon Musk announced the launch of a new business, Tesla Energy, in order to provide stationary storage battery solutions. The cost for Tesla's home battery solution, the Powerwall, took energy storage analysts by surprise as its cost was far lower than anticipated... just $350/kWh. Of note, in it’s first week, the Tesla Powerwall received over 38,000 reservations.

Tesla is singlehandedly upending cost projections in the hyperactive energy storage market. Source: RMI/GreenBiz

And, shortly after the Tesla Energy launch, Musk tweeted “$250kWh for utility scale [stationary storage batteries] is the real kicker” – this was a genuine acknowledgement that Tesla Motors lithium ion battery costs have already fallen at a blistering rate. According to analysts at RMI/GreenBiz, “This means Tesla’s batteries are seven years ahead of the prices we modeled." 

The commercial and utility-scale battery solution from Tesla Energy, the Powerpack, has already received an additional 2,500 reservations, including those from the likes of Walmart, Target, Amazon, and Southern California Edison, with a typical installation size of 10 Powerpacks. This means Tesla is potentially sold out until mid-2016 with these non-vehicle batteries easily capable of taking up the Gigafactory’s entire capacity.

Most recently, Tesla landed a 500MWh grid storage deal with Advanced Microgrid Solutions‬. And, outside the U.S., others have taken notice. Italy's Enel Green Power SpA announced it will partner with Tesla for 1.5-3MWh battery storage, and, Ireland's Gaelectric Group entered into an agreement with Tesla Motors to build a 1 MW demonstration utility-scale project.

Gaelectric Group CEO, Brendan McGrath and Gaelectric Head of Energy Storage, Keith McGrane at the Tesla Energy launch event. Source: Electrek

Panasonic, Tesla's battery supplier and Gigafactory partner, is already stepping up its investment and sending hundreds of its employees to the Gigafactory starting this fall. As demand continues to build for Tesla’s batteries (both on the automotive and stationary storage sides of their business) it’s likely that their battery costs will continue to fall at an increasingly rapid rate. This week, Tesla announced a partnership with a world-renowned battery researcher to lower costs. And Tesla Founder and CTO, J.B. Straubel, proclaimed that the Tesla Model 3's lithium-ion batteries “will become the chief and most important fuel for light vehicles,” displacing the internal combustion engine.