Disclaimer. After nearly 40 years managing money for some of the largest life offices and investment managers in the world, I think I have something to offer. These days I'm retired, and I can't by law give you advice. While I do make mistakes, I try hard to do my analysis thoroughly, and to make sure my data are correct (old habits die hard!) Also, don't ask me why I called it "Volewica". It's too late, now.

BTW, clicking on most charts will produce the original-sized, i.e., bigger version.

Sunday, July 22, 2018

Tesla heading for $100/kWh cell cost

I talked here (EVs cheaper than petrol cars by 2022) about how rapidly battery costs were falling.  EV Obsession has just reported that Musk thinks Tesla's battery packs will be below $100/kWh of storage by 2020.

One of the more interesting revelations to come out of the 2018 Tesla Shareholder Meeting  was updated information about Tesla’s current battery costs and projected reductions over the next 2 years.

A question was put forward by shareholder Joel Sapp, via twitter — “has Tesla broken the seal of $100/kWh?” Initially, Chief Technical Officer J.B. Straubel gave a polite, interesting, but non-specific answer regarding the current costs. Then CEO and Chairman Elon Musk took the microphone and answered as follows:

"We think at the cell level probably we can do better than $100/kWh maybe later this year… depending upon [stable] commodity prices…. [W]ith further improvements to the cell chemistry, the production process, and more vertical integration on the cell side, for example, integrating the production of cathode and anode materials at the Gigafactory, and improved design of the module and pack, we think long-term we can get below $100/kWh at the pack level. Which is really the key figure of merit for a car. But long-term meaning definitely less than 2 years."

It’s good to see Tesla is still both well ahead of the competition on costs today, and also still on track to keep improving their costs at around 15% per year. The most recent cost indication we had was in early 2016, when Tesla said they were already under $190/kWh cost at the pack level. Transforming cells, via modules, into the whole battery pack typically adds 30% cost per kWh on top of the cost of the cells alone. Here’s the graph of Tesla’s battery pack cost trend line, showing significant cost advantage over the industry average which is regularly tracked by BNEF:

Source: EV Obsession

[Read more here]

Note that this chart is plotted on a log scale, which is a much better way to show rates of growth or decline.  A straight line means a constant rate of increase or decrease.

What the chart indicates is that by 2025, even non-Tesla manufacturers will be able to sell EVs as cheaply as petrol/diesel cars (ICEVs)

This also has vital implications for transforming the grid.

Currently, the Tesla Powerwall battery costs $5,900 for 13.5 kWh of storage (including the inverter/transformer but not other supporting hardware)  Let's assume the inverter costs $700 (and inverter costs are falling rapidly too) that means the battery pack costs $5,200.  This is 3 times what the car battery pack costs about now ($130/kWh).  Tesla needs to charge this much because it needs to make a profit and generate cash to show it can, and that need won't go away until prolly the end of this year or later.  Also, why cut the price of the Powerwall/Powerpack when sales are not demand constrained but supply constrained?   Plus, Tesla batteries are still cheaper than the competition.  The cost of the car battery pack gives some idea, though, of just how far battery costs for grid and household storage could fall.  At $100/kWh storage, the cost per kWh delivered will be just  2.7 cents for 24 hours of storage.  You will be able to have a battery with a day's supply in your house for less than $1 per day.  OK, retail battery storage will prolly remain relatively more expensive than car  batteries if only because of installation, which will not be at industrial scale.  But for wholesale/utility-scale storage, with its economies of scale, storage will add just $27/MWh for 24 hours of storage to the cost of wind or solar. Remember, that's just 2 years away.  Renewables will be unbeatable.

If you think  of global CO2 emissions being (very roughly) 1/3rd for electricity generation, 1/3rd for land transport and 1/3rd for everything else (steel, cement, sea transport, agriculture, and forest clearing) we will probably be able to cut emissions by 2/3rds by 2030 as we green our grid and our transport.  The pressure to deal with the remaining carbon-heavy industries and to stop forest clearing will be intense.

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