Battery Study: Electric vehicle battery costs declining rapidly, Tesla leads the way

With significant progress announced at the Tesla Motors [NASDAQ: TSLA] Gigafactory, it looks like Elon Musk will easily hit his stated goal of lowering battery costs for the Model 3 by 30 percent. Battery cost reductions are critical to mass adoption of electric cars. According to InsideEVs*, "Most experts and consumers agree fully that the cost factor of electric vehicles is the main inhibitor of sales and mass adoption. The cost of electrified vehicles is highly contingent upon lithium-ion battery prices. According to a recent study, costs are declining substantially and rapidly, perhaps more so than most of us thought."


Above: The Tesla Model 3 (Image: Motor Trend)

So what did this new study reveal? "The study, entitled Global Trends in Renewable Energy, actually refers to the [battery] price decline as 'spectacular.' The Frankfort School of Finance and Management headed up the study, in cooperation with Bloomberg New Energy Finance and the United Nations Environment Programme. The study shows a constant decline from 2010 to 2015, with a 35% drop from 2014-2015. Reductions are attributed to a variety of reasons, but mainly come as a direct result of cell chemistry changes, adapted manufacturing processes, and aggressive pricing."


Above: Panasonic's 18650 lithium ion batteries currently used in the Tesla Model S (Image: Charged)

Who is leading this electric vehicle battery revolution? "The Tesla Gigafactory is the prime example of the future of high-volume lithium-ion battery production, which will only forward the above-mentioned catalysts for drastically reducing battery costs. The study actually cites the Gigafactory as a contributing factor to the decline, despite the fact that it’s just beginning production. Tesla plans to produce 35 gigawatt hours of cells per year by 2018."


Above: Rapid construction progress continues at the Tesla Gigafactory (Image: Inverse)

And it's not just this one study — according to Business Insider, another "recent report from McKinsey & Company, advances in battery tech have helped the average battery pack price go down from about $1,000/kWh to roughly $227/kWh since 2010. McKinsey says that figure will continue to come down, potentially bringing EVs close to parity with the cost of other [gas-powered] cars. This process is already in motion, to an extent, with the likes of the Chevy Bolt and upcoming Tesla Model 3." In fact, Tesla's Vice-President of Investor Relations, Jeff Evanson confirmed last April "that Tesla’s battery pack cost is already below $190/kWh." And some estimates put Tesla's battery pack cost even lower at $120/kWh.


Above: As purchase price is the main obstacle for electric vehicle adoption, battery cost declines will likely usher in a new era (Source: Business Insider)

In any event, it's important to note that "just recently, Tesla officially began producing 2170 Battery Cells at its Gigafactory. The primary use of the initial cells will be for the company’s home Powerwall 2 battery units, and industrial Powerpack 2 energy storage batteries. But, eventually the cells will go into Tesla’s upcoming Model 3." That said, it wouldn't be surprising to see the battery cost curve continue to decline (more steeply) as Gigafactory production really begins to ramp up.


*Source: InsideEVs