Tesla Motors Inc. took concrete steps this week toward launching a first-of-its-kind, large-scale battery production facility. CEO Elon Musk told investors yesterday he's confident electric vehicles will match or beat the price of comparable internal-combustion-engine vehicles within the next 10 years.
Auto industry experts believe that battery costs would have to drop to $100 per kilowatt-hour in order for electric vehicles (EVs) to have a distinct cost advantage over gasoline-powered cars. Tesla currently produces batteries for its 300-mile-range Model S all-electric sedan at roughly $250 per kWh.
Tesla announced yesterday that it had signed a formal agreement with Panasonic Corp. to build a large-scale battery manufacturing plant, dubbed the "Gigafactory." In light of the technical and logistical advances the factory would bring, Musk said he would be "disappointed" if it took Tesla 10 years to make a $100-per-kWh pack, suggesting it could happen before the end of the decade.
"It's heading to a place of no contest with gasoline," said Musk speaking to the expected drop in battery cost on a second-quarter earnings call.
"The sooner this can be done, the sooner we can reduce carbon output and reduce the probability of a catastrophe," he added, referring to climate change. "In the absence of the Gigafactory, this progress would be much slower."
Tesla is in charge of picking the location and managing the land, buildings and utilities for the $5 billion Gigafactory project. Panasonic will manufacture and supply cylindrical lithium-ion cells and invest in related manufacturing tools. Key suppliers will also be integrated into the industrial complex.
Shopping for state incentives
In June, Tesla broke ground on a site outside of Reno, Nev., that could potentially serve as the Gigafactory location. According to Musk, the construction pad has been completed, but Tesla will continue to identify and break ground on other sites in one or two other states in parallel to determine the most advantageous location.
"Before we actually go to the next stage of pouring a lot of concrete, we want to make sure we have things sorted out at the state level," said Musk, "that the incentives are there that make sense, that are fair to the state and Tesla."
In Nevada, the decision to progress rests with the governor and the state Legislature, he added.
The final site for what Tesla has called "the first Gigafactory" will be determined within the next few months so that it's fully operational by the time Tesla plans to start production on its more affordable Model 3 vehicle in the 2017 time frame.
The Gigafactory will enable dramatic cost reductions on the third-generation EV for several reasons. First, the new batteries will have a different chemistry. The cell shape and size are also being optimized to improve cost and installation efficiency. As a result, the Gigafactory batteries will be lower-cost and achieve a 10 to 15 percent improvement in energy density, said Musk.
The logistical advantages of managing the supply chain in-house, so-called vertical integration, will achieve further cost reductions. As a result, Musk said he was confident battery prices would drop by 30 percent per unit.
The advantage comes down to how far a molecule moves, he said. "If a molecule is taking several round trips around the world, that's expensive. If it's just moving from one station to the next, that's obviously lower-cost. Vertical integration just means the molecule doesn't move as much."
Ramping up production
In the meantime, capacity at Tesla's existing Fremont, Calif., factory, where production has been clipping along at 800 vehicles per week, will increase. With the addition of a new assembly line and more automation features, Tesla expects to produce more than 1,000 vehicles per week by the end of the year, putting it on track to meet its 2014 goal to deliver 35,000 vehicles.
At this pace, with shipments expanding in China and the Model X SUV set for launch next year, Tesla projected in its shareholder letter that its annualized delivery rate would nearly triple to 100,000 units by the end of 2015.
Some investors on yesterday's call questioned Tesla's ability to make that leap while maintaining product quality and brand integrity.
Quality control on the critically acclaimed Model S -- which starts at $70,000 -- was recently called into question by the influential automotive review website Edmunds.com. Last month, the reviewer announced it was selling its Model S after 17 months of ownership, complaining of suspicious noises, issues with the touch screen and repeated replacements of the drive unit, among other things.
Musk acknowledged the incident but noted that many of these flaws had been ironed out in later models. Meanwhile, demand for Tesla vehicles in the United States and around the world hasn't let up.
Competing against 'fool cells'
As Tesla underscores its commitment to the battery-electric vehicle market, several other automakers are bullishly moving ahead on hydrogen fuel-cell vehicles, which, like EVs, produce zero tailpipe emissions.
In June, Hyundai delivered the first 2015 Tucson Fuel Cell crossover. Toyota recently announced that its fuel-cell car will go on sale before April of next year. Honda is also aiming to launch a fuel-cell car in 2015.
To support the vehicle rollout, the state of California announced in June a $50 billion commitment to build out 28 hydrogen refueling stations (ClimateWire, May 8).
Musk has repeatedly denounced hydrogen vehicles, which would compete directly with his plug-in cars, calling them "fool cells." While hydrogen cars have the potential for longer drive range and faster refueling times, Musk pointed out yesterday that using a low-density fuel like hydrogen on board a vehicle is inefficient and that hydrogen fueling infrastructure is far more expensive to build than EV charging stations.
When asked why he thought other automakers are pursuing hydrogen fuel-cell vehicles, Musk said, "We're quite confused about this."