How Soon Can Tesla Get Battery Cell Costs Below $100 per Kilowatt-Hour?

Its $100 per kilowatt-hour goal could be reached sooner than expected—and well ahead of the competition.

Eric Wesoff March 15, 2016

Eric Wesoff

Editor-at-Large
Greentech Media

Eric Wesoff is Editor-at-Large at Greentech Media. Prior to joining GTM, Eric Wesoff founded Sage Marketing Partners in 2000 to provide sales and marketing-consulting services to venture-capital firms and their portfolio companies in the alternative energy and telecommunications sectors. Mr. Wesoff has become a well-known, respected authority and speaker in these fields.

His expertise covers solar power, fuel cells, biofuels and advanced batteries. His strengths are in market research and analysis, business development and due diligence for investors. He frequently consults for energy startups and Silicon Valley's premier venture capitalists.

Where does the lithium-ion battery industry -- and most notably, Tesla/Panasonic -- stand today on battery costs?

Solar veterans will recall a time not so long ago when the industry's biggest dream was a PV module with a cost of 99 cents per watt. Obviously, the solar industry has long left that figure in the dust -- module costs of 40 cents per watt are a reality in today's market.

In fact, the 99-cent figure was more a VC-funding, press-ready construct than a real economic calculation.

Which is reminiscent of the equally arbitrary $100 per kilowatt-hour battery cost goal now put forth by the battery industry and the press. (Although it does help to have a concrete target to aim for.)

Ben Kallo at equity analyst firm RW Baird believes that Tesla's current battery costs are ~$150 to ~$200 per kilowatt-hour, well below the industry average pack costs of ~$350 per kilowatt-hour (as estimated by Bloomberg New Energy Finance). Kallo suggests that the Chevy Bolt's battery costs "are significantly higher" than those of Tesla.

Kallo suggests that Tesla "could reach its <$100 per kilowatt-hour target in the intermediate term as Gigafactory production ramps." He continued, “Additionally, we believe TSLA is ahead of expectations on reducing battery costs, and continues to have a significant lead on competing EVs.” (Kallo upped his Tesla stock target to $300 per share based on improved Model X production.)

GM sees its battery cell cost hitting $100 per kilowatt-hour in 2022. (GM is quoting cell cost, while Kallo is talking about battery packs. A complete battery pack "typically adds 20 percent above the cost of cells," according to David Snydacker, a battery expert at Dosima Research.)

Snydacker listed some ways Tesla could scrub out cost.

"Tesla can achieve cost savings through a variety of innovations related to manufacturing and battery technologies. For example, new approaches to electrode solvents (used to deposit electrodes) and formation cycling (initial charging at the factory) can help Tesla outperform recent forecasts for battery costs."

"Tesla and their suppliers may achieve savings by adding excess lithium or by replacing cobalt with cheaper manganese. They can eliminate dead weight in the cell by engineering inactive layers to be stronger and thinner, and by making active layers thicker. Cells can be made larger through better thermal performance. These innovations are marginal, but they add up to enhanced performance and lower cost."

"Many of these trends are reflected in Argonne Lab’s model for battery costs, which is a gold standard in the industry and is called BatPaC." BatPaC version 2 was released in December 2012 and showed Tesla-type batteries costing $163/kWh for 90-kWh packs at 500,000 per year. In December 2015, BatPaC version 3 was released, showing $109/kWh. The next version of BatPaC could easily predict prices below $100/kWh, in accordance with predictions by Baird and others."

This drop in battery costs will make battery electric vehicles "competitive with internal combustion engine cars in Europe by 2021 and in China by 2025," according to UBS.

If the parallels for the solar industry and the battery industry hold true, then battery costs will fall below the $100 per kilowatt-hour mark much sooner than expected.

Ravi Manghani, GTM's senior energy storage analyst adds, "In addition to mass-scale adoption of BEVs in global markets, a $100/kWh cell cost will have profound impacts on the growth of stationary energy storage markets. GTM Research's 2020 U.S. energy storage forecast of 1.7 gigawatts of annual deployments is based on battery pack costs reaching $200/kWh (by 2020). If we accelerate the cost reductions to below $100/kWh before the end of this decade, it could open up additional markets and applications even sooner."