Is Tesla Gigafactory a Bad Investment?

Let the battle begin.

It pits liquid filled Lithium-ion batteries against solid state Lithium batteries.

The Department of Energy has established a goal of $125/kWh for EV batteries.

Currently, many cite the rating of current EV batteries as being around $400/kWh.

However, reports place Tesla’s current battery at $260/kWh, with the proposed giga factory bringing the cost down to $185/kWh by 2018.

These costs are very difficult to nail down, because there’s both the cost of the internal battery components, but also the cost of the packaging required for encasing Lithium-ion batteries using liquids or gels.

There’s also the question of whether the cost is a commercial cost, i.e., with overhead and profit included, or a transfer cost that excludes portions of overhead and any profit.

It’s conceivable that Tesla will use a transfer cost when costing the battery for inclusion in the finished cost of the automobile.

But, it’s reasonable to assume that the gigafactory will bring the commercial cost down, perhaps to around $200/kWh by 2018, assuming the current cost is $260/kWh.

At $200 per kWh the cost of the battery for the existing and proposed Tesla vehicles would be:

  • Model S = $17,000
  • Model 3 = $11,000 (Assumes 55 kWh battery)

These both assume a range of over 200 miles.

Looming on the horizon, however, is the solid-state Lithium battery.

There are a number of startups that are pursuing solid-state technology that eliminate the liquid or gel that’s part of existing Lithium-ion batteries.

A few of these include:

  • Solid Power in Colorado
  • University of Maryland
  • Sakti3

Applied Materials manufactures the equipment that these startups will use for the manufacture of solid-state Lithium batteries, and they have additional information on the process.

Sakti3 has received considerable publicity, but all of them are still working at the laboratory level.

Even so, Sakti3 claims it can reach a cost of $125/kWh using its approach.

Evolution of Battery Technology from Materials 360 Online
Evolution of Battery Technology from Materials 360 Online

A battery costing $125/kWh could make EVs more affordable, though there are still major hurdles before EVs are likely to replace the internal combustion engine.

Not the least of which is the cost of replacing batteries. The battery of an EV using a 55 kWh battery would cost around $7,000. This battery would have to be replaced at some point, perhaps at 100,000 miles, and possibly sooner.

This would be similar to taking your car to the dealer to have the engine replaced. The process may be simpler, but the financial obligation remains.

This is a cost that will be factored into the resale price and depreciation of EVs that will be a hurdle for some consumers.

But, why did Elon Musk decide to use the existing Lithium-ion battery technology for his gigafactory and not the solid state technology?

Many say that Musk is a better promoter than was P. T. Barnum, but it’s doubtful Musk is a fool.

Musk undoubtedly explored the new solid state technology before deciding to use existing battery technology.

The current status of the solid state technology must have been such that it wouldn’t be ready by 2018.

Beyond that, Musk should have wanted to get at least a minimum return on his investment in the giga battery factory.

Optimistically, he might have expected a five year payback, but more likely he would have expected a ten-year payback.

Using these assumptions, it would appear that the earliest a solid state battery would be commercially available would be 2023, or more likely 2028.

Musk must have concluded that he would be first to market with a less costly, but not least costly, Lithium-ion battery, and that by using existing Lithium-ion technology he would establish Tesla as the premier EV car manufacturer.

And, there’s no assurance that sold state Lithium batteries will be successful in bringing their cost below what Musk envisions.

But that doesn’t mean that Musk hasn’t been overly optimistic.

He expects the giga battery factory will supply 500,000 EV cars beginning around 2020.

That could be a huge mistake.

At the current rate, it’s very doubtful that EV sales will reach 500,000 by 2020.

He is also counting on his arrangement with SolarCity to absorb some of the gigafactories output.

It’s possible, however, that California’s mandate for energy storage could save Musk from bankruptcy.

The irony is, that even if 500,000 EVs are sold every year, they will not cut CO2 emissions since the electricity for recharging batteries will have mostly been generated using fossil fuels.

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0 Replies to “Is Tesla Gigafactory a Bad Investment?”

  1. Hi Donn,

    Great article!

    I owned Tesla stock in 2013, sold it after holding it for about six months and made a profit. I bought 50 shares of Tesla stock about a month ago, and will continue buying at lower prices, averaging down over the next few years. Most stock analysts consider Tesla stock to be a momentum stock, due to the stock’s volatility and Elon Musk’s “hype” during press and TV interviews.

    I conclude from your article that you think Elon Musk’s 500K battery sales volume is far too optimistic and that the solid state battery sales will eventually out-sell the current technology that will be manufactured in Tesla’s Nevada Giga-factory.

    You also mentioned the state of California’s support of solar plants need for energy storage for night-time energy output. I see no near-term competition for Tesla’s Giga-factory in the near term, so I will continue to increase my Tesla share holdings over the next couple of years.

    Thanks for your well-thought-out article!

    Craig

    Sent from my iPhone

    >

    • I did not intend for my article to be used for investment purposes. My articles always relate to energy issues, so occasionally they may impinge on various companies and their activities. But they are not meant to support or disparage any particular stock investment.
      Everyone has to make up their minds, as you have done, after doing their own research.
      Thanks for your comment.

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