A project without precedent
Indeed, the key for Tesla is to be able to sell huge numbers of its Gen III vehicle, which Musk has described as a “compelling, affordable electric car” that would sell for about half the price of its current Model S by 2016.
To do that, however, Tesla will need to significantly cut the cost of its lithium-ion battery packs. Today, the company is believed to be buying its 18650-sized cells (cylindrical batteries slightly larger than a AA) for about $180/kWh from suppliers and producing finished packs containing about 7,000 cells for an estimated cost of $300/kWh to $450/kWh. Part of the extra cost comes from the company’s addition of a battery cooling system, as well as the fact that each of the cells must be individually connected to modules, a task that analysts describe as a manufacturing challenge.
”One of the reasons that other manufacturers ran screaming from the room when they thought about using little cylindrical cells is that the cells must be welded in two spots,” Jaffe told us. “And they have to do that for each of the 7,000 or 8,000 cells.”
Still, Tesla has found a way to accomplish that and will continue to take advantage of its manufacturing expertise in the Gigafactory. “In some ways, Tesla’s true technological advance isn’t about batteries,” Jaffe said. “It’s about a welding process that they’ve figured out how to do quickly, correctly, and cheaply.”
At the Gigafactory, Tesla hopes to push the pack cost down to as low as $150/kWh. Using those numbers, a 50-kWh Gen III battery would cost the company as little as $7,500. That, in turn, might enable Tesla to build a pure electric car with a 200-mile range for a price as low as $30,000. If successful, it would give the Gen III a leg up on competing EVs, most of which have all-electric ranges of less than 100 miles.
The problem, however, is that reaching $150/kWh is a huge challenge, even with a Gigafactory. “Based on my 30-plus years in this industry, I can tell you that $150/kWh is a very, very lofty goal,” Subhash Dhar, CEO of Xalt Energy and Energy Power Systems, told us. “We’d be happy and lucky if we could just get the number to $230/kWh.”
The variability of cell costs, pack costs, and vehicle costs is what leads industry experts to describe the Gigafactory as a big gamble. No one knows whether Musk’s grand vision can reach its cost targets, and if it doesn’t, whether the sales could come close to his goal of 500,000 vehicles a year by 2020.
To date, sales of battery electric cars have fallen far short of 500,000. In 2013, Tesla sold just 22,477 electric cars, compared to 22,610 for the Nissan Leaf, 1,738 for the Ford Focus EV and 1,096 for Toyota’s RAV4 EV. While competitors offer relatively inexpensive electric cars, however, none offer the 200-mile all-electric range that’s planned for the Gen III.
Still, Tesla will need to get its Gigafactory up and running soon to make its 2020 target, largely because the design cycle for that model year begins around 2016. Current plans call for the launch of the Gigafactory in 2017.
For the auto industry, the Gigafactory could provide an answer to the decades-old debate over the viability of electric cars. Up to now, electric car proponents have held that the technology was only in need of scale to prove itself. Non-believers, meanwhile, have argued that the technology isn’t yet ready for the mainstream market.
For Tesla, however, the concerns will be financial. The $5 billion cost and enormous scale of the project have prompted many to wonder if Musk is betting the company on the Gigafactory. But because the concept is virtually without precedent, industry analysts won’t even hazard a guess. “The question is, how many cars would they have to sell to break even?” said Laslau of Lux Research. “One-hundred thousand? Two-hundred-fifty thousand? Or would they need to sell all 500,000? No one knows.”
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