A $35,000 Tesla? Battery Expert Says “Unlikely”

IFA Consumer Electronics Trade Fair 2014

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The electric vehicle industry’s Holy Grail can be summarized in brief: 200 miles of range at an affordable price point. Assuming incentives continue for both charging and purchasing an EV, mass market U.S. auto consumers would be ready to pounce on any car fitting within those parameters. Tesla Motors (NASDAQ:TSLA) is pursuing that grail with a singular focus now that it has a spot for its Gigafactory, but one battery expert says the EV maker’s hope to get the car below $40,000 is overly optimistic. In fact, his projections take the next-generation Tesla close to the Model S starting price.

Tesla’s projections too ambitious?

Making powerful lithium-ion battery packs affordable is one of Tesla’s chief priorities. Numbers-wise, the generally accepted benchmark is $100 per kilowatt hour ($100/kWh). Meeting that goal would mean a 30 percent reduction in costs over the next ten years. Should Tesla be able to achieve that goal (Elon Musk said he’d be “disappointed” if it took the full ten years), then the promise of a mass-market Tesla costing between $35K and $40K would be realized.

Menahem Anderman of Advanced Automotive Batteries recently published a detailed report on Tesla’s battery project. After acknowledging the many ways Tesla has already done the impossible in the auto industry, Anderman pulls the plug on the proposed $100/kWh mark by 2025. Instead, Anderman says a cost of $200/kWh is “unlikely before 2020,” adding that it will probably take until 2025 to lower the cost to $167/kWh. In other words, don’t go clearing out the garage anytime soon. Anderman says the Model 3 won’t be juicing up there unless it costs a lot more.



A new price projection for the Model 3

According to Anderman’s projections in the report, it will take until well after 2018 for the Gigafactory battery costs to drop enough to deliver an affordable product. In the meantime, expect to pay BMW or Mercedes prices for the next-gen Tesla. Anderman projects the Tesla following the Model X utility vehicle will cost “in the range of $45-75K,” pitting it in the arena of the BMW 5 Series or the Mercedes Benz E Class. There is nothing “mass-market” about these luxury species.

A Tesla Model S, for its part, starts around $70K before rebates now. That’s strictly a wealthy person’s auto market. Originally, a Model S with a smaller (40 kWh) battery pack intended to take the market around $50K after rebate. The problem was the smaller range (160 miles) didn’t sell. It represented a fraction (4 percent) of the company’s early Model S sales. So if the Model S was falling in the range that Anderman is predicting, it means he’s counting on virtually zero progress towards a cheaper electric car in the next two to three years.

Of course, the starting price of a 60 kWh Tesla Model S is rarely close to that of the model delivered to consumers. Anderman notes in his report that Tesla sold more $90,000 cars than BMW or Mercedes did in the U.S. in 2013. Would the next Tesla model simply lower that price point and allow Tesla to set its sights on the mid-to-upper range German luxury vehicles? That doesn’t sound like a game-changer, an “electric vehicle of the people” in any way. In fact, it sounds like the 40 kWh Tesla that flopped.

There would be a lot of explaining to do to investors if Anderman’s predictions came true. There is a decade to see who is right. Tesla’s clock has already begun ticking.

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