By Tommy Pigatto
In the time leading up to Tesla’s highly anticipated ‘Battery Day’ event on Tuesday, September 22nd, investors had high expectations for the unveiling of what celebrity-CEO Elon Musk promised would be “exciting things”. The company’s stock price quadrupled this year alone, and Musk has made it clear that he is determined to make Tesla the world’s most advanced lithium ion battery producer, as well as the world’s largest automaker for decades to come. Through vertical integration, Musk asserts that he will be able to halve battery costs and double each Tesla vehicle’s driving range by 2030. However, with sky-high stock prices and even higher expectations, Musk had much to prove in order to please his growth-hungry investors. It seems that though Tuesday’s event left some investors craving more, Tesla continues to outpace industry predictions for an affordable electric vehicle.
Musk gave the multi-hour presentation—also referred to as the “2020 Annual Meeting of Stockholders”—in front of a California parking lot filled with Tesla shareholders, who were eagerly awaiting the announcement of breakthroughs in electric battery technology from the tech giant. Upon taking the stage, he was greeted with a flurry of excited honks from the mass of car-bound investors.
Namely, these investors anticipated the introduction of a cheaper, more durable battery that would cost the consumer less than $100 per kilowatt-hour (kWh) and be capable of lasting a vehicle’s entire lifetime—optimistically nicknamed the ‘million-mile battery’. A kilowatt-hour is a unit of energy commonly utilized as a billing unit for energy used by consumers in electric appliances and vehicles. Lowering the price per kilowatt-hour to under $100 would make electric cars roughly the same price as combustion engine vehicles.
Unfortunately for Tesla, though Musk was able to promise the former within three years, it seems that ‘Battery Day’ failed to live up to the hype, resulting in a $50 billion loss in the electric car manufacturers stock market value. This loss may be a result of Musk’s history of grandiose claims, but in the long term, there is still much to look forward to with Tesla.
As Senior Technology Research Analyst at Bernstein Research Toni Sacconaghi summed up, the event was “long on vision”, but “short on near term deliverables”.
Alongside Tesla’s Senior Vice President for powertrain and energy engineering Drew Baglino, Musk announced the development of a new, larger, “tabless” cylindrical battery. This new type of battery, Musk claimed, will be capable of supplying five times more energy, be six times more powerful, and have a 16% larger driving range than Tesla’s current batteries. By adopting a non-liquid solvent manufacturing process and swapping expensive cobalt cathodes for more affordable nickel cathodes, Musk claims these new cathodes—the positively charged electrode in an electronic device’s battery—will help cut costs by nearly 15%. These batteries are already being produced en masse by Tesla, but Musk went as far to promise even greater strides in battery production in years to come.
Currently, batteries are the most expensive part in an electric car, accounting for nearly a third of an electric vehicle’s cost in 2020. For the past six years, Tesla has produced batteries in tandem with Panasonic at their “Gigafactory” outside Reno Nevada. However, the company now plans on pursuing a model of vertical integration. In owning every part of the production process, Musk claims Tesla will be able to reduce battery costs by more than 50% by the year 2030, while also increasing the driving range of each battery by 54%.
These advancements in battery production will help Tesla realize its ultimate goal of mass producing affordable, high quality, electric vehicles. By reducing the batteries percentage of total vehicle cost from 30% in 2020 to a projected 15% in 2030, Tesla will save nearly $2,000 per vehicle, savings that Musk hopes Tesla can pass on to the consumer in years to come.
In fact, Musk went as far to claim that because of these projected improvements in the price and capacity of batteries, an affordable $25,000 Tesla model will be available in the next three years. He also claimed that by the year 2030, he predicts Tesla will be producing 20 million cars per year—nearly 40 times the company’s current production in 2020.
If this sounds extremely ambitious to you, that’s because it is. Musk himself even admitted that ramping up battery production to this degree is “not completely in the bag”. It may very well be this uncertainty that has prompted shareholders to withdraw $50 billion worth of funds from Tesla, as Musk is no stranger to making promises he cannot keep. Musk made the very same “$25,000 Tesla” claim back in 2018, which has now, obviously, been proven to be untrue.
Despite this uncertainty, Musk insists that “it was always [Tesla’s] goal to try to make an affordable electric car”, even if they continue to fall short of their own timetables. As the company continues its process of vertical integration, and battery technology continues to improve, Musk remains resolutely “confident that, long term [Tesla] can design and manufacture a compelling $25,000 vehicle”. Time will tell if this confidence will be enough to maintain financial support from Tesla’s less self-assured shareholders.
The views expressed in this article are the author’s own and may not reflect the opinions of The St Andrews Economist.