Although EV battery are a very expensive component of the Tesla cars, they are on the rise. GTM Research recently predicted that by 2030, the cost of a lithium ion battery will drop by 65 percent. Tesla is leading the charge and will continue to improve. However, these changes will require significant changes to how the car is built and how technology is used.
A 60 kWh pack was included in the Model S first models, but this is too small for a long-range vehicle. The company is exploring a new battery system and form factor to power the Model 3. In a letter to investors, Tesla founder Elon Musk said that Model 3 production will move from its Nevada factory to Reno, where it will use larger, commodity battery cells that are designed to be cheaper to manufacture.
According to Goldman Sachs each year, the cost of solar panels falls by 3%. This should reduce the cost of Tesla's battery, which is also expected to fall by 3% every year. Due to the increased production capacity, it's likely that Tesla cars will be more affordable. The Model 3 cost $35,000 before incentives. The Model X comes with an 85 kWh lithium-ion battery pack and costs US$17,000, almost double the Model 3's cost.
The Tesla Gigafactory is designed to reduce Tesla battery costs by a quarter. Vertical integration and economies of scale will enable this to happen. Although production has not begun yet, the factory was planned to start production in 2016. In addition to the battery manufacturing plant, Tesla also announced a partnership with Panasonic, a Japanese manufacturer of aftermarket vehicle audio products and speakers. The two companies will work together to manufacture batteries at the Gigafactory.
The Gigafactory currently is not at full capacity. It will not start producing Tesla-branded batteries until fall 2016. Tesla has yet to reveal the exact production plan, though the company's website says that the plant will produce batteries for the Tesla grid and solar power storage units. The Tesla and Panasonic plant will employ approximately 6,500 people.
Tesla's founder Elon Tesla said that the company plans on selling 500,000 cars per annum. This is a simple number to hit and it will help lower the cost for the Model 3. The federal tax credit will end for Tesla after 200,000 cars are sold, but this will only help customers who purchase the car through aggressive subsidies.
California state rebates also cover 60 per cent of the battery price, in addition to the federal credit. State incentives are available for solar-powered cells. Federal tax credits are available for solar-powered batteries that cost less than 30% of the price. The cost of the battery is expected drop to $125/kWh before 2020.
If Tesla's battery technology continues to improve, the Model S's price could drop to US$17,000; this is a significant decrease from the current price. But, it is still not enough for the car to be affordable.