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Elon Musk Hangs Up As Writer Questions Battery-Cost Declines

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Tesla Motors CEO Elon Musk at Motor Trend 'Car of the Year' ceremony in New York City, Nov 2012

Tesla Motors CEO Elon Musk at Motor Trend 'Car of the Year' ceremony in New York City, Nov 2012

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Reporters interview CEOs all the time, but it's rare for those CEOs to end interviews abruptly.

Which is what makes an article in Barron's about Tesla Motors [NSDQ:TSLA] and its current high stock price so entertaining.

In "Recharge Now!", author Bill Alpert opens with a comparison between Tesla CEO Elon Musk and Iron Man comic-book hero Tony Stark.

He summarizes the rave reviews received by the Tesla Model S all-electric luxury sport sedan and notes, accurately, that Tesla stock was propelled to its current heights on the basis of one profitable quarter and a classic short squeeze.

In a piece whose main focus is the company's stock price, he suggests that long-term demand for Tesla's cars (which start at $69,900) is still something of an unknown.

"Tesla irked analysts last month when it stopped disclosing its end-of-quarter order backlog," he says, "after previously trumpeting a 15,000-unit reservation list."

Then he gets to his core question: Will lithium-ion battery costs fall enough by 2016 to enable Musk to fulfill his promise of a Tesla electric sedan with a 200-mile range that costs $30,000 to $40,000, only half as much as the Model S (thereby perhaps justifying its stock price)?

The current price of Tesla stock, Alpert argues, is "a bet that Tesla can sell hundreds of thousands of cars a year" once it launches its third-generation car in 2016.

But that would require "breakthroughs in battery technology to get Tesla to that price level without skimping on range."

The pace of battery-cost declines is one of the most-debated topics in the electric-car world and the auto industry.

Over two decades, small-format lithium-ion cell costs have fallen an average of 7 percent a year. It's not steady progress; the declines come in a series of "stairsteps" as new chemistries and new production processes are introduced and production volume rises.

Elon Musk signs new 2013 Tesla Model S at Tesla Store opening, Austin, Texas [photo: John Griswell]

Elon Musk signs new 2013 Tesla Model S at Tesla Store opening, Austin, Texas [photo: John Griswell]

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So everyone expects costs to fall, but the question is, by how much?

Morgan Stanley analyst Adam Jonas says battery-pack costs should fall from $400 per kilowatt-hour to $200 by 2016.

But GM's Bill Wallace is quoted pegging the improvement at 20 percent over "the next few years," with an outside chance that the decline could be as high as 40 percent in five years if new technologies pan out.

Alpert summarizes the likely decline by 2016 at 20 to 30 percent, saying that "few expect" improvement much beyond that range.

And that was what he was trying to discuss with Musk in a phone interview on Friday when Musk hung up.

As Alpert reports it:

"I have no interest in an article that debates what we consider to be an obvious point -- which is that there is a dramatic reduction in battery costs," Musk said, after a few questions.

"You clearly do not understand the business. My apologies. I am terminating the interview."

Tesla Motors - Model S lithium-ion battery pack

Tesla Motors - Model S lithium-ion battery pack

Enlarge Photo

The article also recaps Tesla history, underscores the importance of the 2016 model to its future, looks at disappointing sales of lower-range electric cars to date, and adds some additional data on battery-cost projections.

Musk, meanwhile, told Alpert--before he hung up--that battery improvements would knock $10,000 to $12,000 off the cost of a Model S battery pack down to $10,000 to $12,000.

Debate over the pace of battery-cost reductions will continue to rage, and Tesla's stock will rise and fall over months and years until its third-generation car goes into production.

We'll have a more detailed look at Tesla's battery technology shortly, along with some thoughts on its cost structure.

Meanwhile, you have to admire a CEO who can assess a situation and then cut his losses--let alone a reporter willing to report the words with which he's been chastised.

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Comments (38)
  1. Bet he called the reporter a huge d-bag once he hung up the phone.
    http://techcrunch.com/2009/04/10/teslas-elon-musk-grows-a-pair-good-for-him/
     
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  2. Lol. Ya, that's about what I expect he did.
     
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  3. Elon is right! Did this reporter expect Elon to tell him that the price of batteries will go up as time goes by? Or the third option that the price will stay the same as time goes by?
     
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  4. the price of batteries will go down when china says they will go down. china builds the batteries. I think china likes musk, if only to trump detroit. also they can always use less batteries by making the cars smaller, lighter, more aerodynamic. and yes, slower. zero to 60 in 12 seconds. two seat, 1200 lb car is possible, aerodynamic shape, would increase range, decrease power levels.
     
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  5. In the case of the Tesla batteries, the internal core is manufactured in Japan. That said, battery assembly occurs in China, and prices appear to be very much driven by the effort China is putting into them.
     
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  6. Most people won't buy that slow kind of car...
     
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  7. At 7% per year, in 3 years the compounded price decline might be about 22%. Assume $400/kWh now (if that low) and a 85kWh battery why is 22% * $400/kWh * 85kWh = $7.5k so unbelievable? If they are really now paying $500/kWh then the reduction would be $9.4k. Why would a driven CEO who has detailed knowledge about technology and price trends want to waste his time debating this? Steve Jobs would have terminated the call much less tactfully.
     
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  8. The lithium-ion price drop over two decades is really about cell phones and laptop batteries, not electric cars that use much more. That number should easily double if electric cars continue to sell the way they do and use more lithium-ion batteries.
     
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  9. Nicolas, Elon has said the car battery is composed of hundreds of small cells. (Perhaps AAA cells?) They are spaced apart in such a way as to prevent heat build up but the wiring and metrics are kept secret. I think they probably have them in serial to make a certain voltage and then in parallel to supply the amperage. Metrics are probably on each serial line. Then probably a log showing any abnormalities along with usage history. Then a way to switch in and out these serial lines for power and charging.

    There is probably a lot of new technology being used and measured closely. I suspect many things that could go wrong. I also suspect Elon has it all covered so we don't need to think about details.
     
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  10. Actually the source article says:"improvements will cut the cost of the Model S's battery to $10,000-$12,000". That suggests the end price not the amount of cost reduction.

    Comparing the price of the S/60 and the S/85 one can see that Tesla charges $400/KWh *retail* for extra battery capacity.
     
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  11. Yes, Barron's screwed the pooch on this one.
     
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  12. Nope, John Voelcker did.
     
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  13. @Chris O: You're quite right, and thanks for pointing that out. I read that, but it's obviously not what I typed. Fixed now.
     
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  14. Musk does tend to loose his cool occasionally. Guess that's the difference between a real person and some cartoon character.

    Hanging up like that doesn't seem like the smart thing to do. OTOH: if he tells a reporter that the cost of a Model S battery will drop to $10-12K, yet he keeps harping on the lines "experts" feed him about a much more limited scope for cost reduction I certainly understand how further discussion might seem rather pointless. People need to decide if they want to trust the "experts"or the people that are actually in the business and betting their own money on its future.
     
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  15. Some version of this is what I expect occurred. Barron's clearly had an idea of what they thought the batteries cost. A poorly sourced idea, but an idea.
     
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  16. Musk is not naive when it comes to reporters and the Broder case shows that he likes to keep records when dealing with them so we might yet get to see a transcript that makes clear why exactly Musk lost his patience.
     
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  17. and by the way, the Tesla stock may well be overpriced for now.. but as far as the technical or business prospects of Tesla, the author of the Barron's article is obsessed with his battery cost debate while totally ignoring the baseline comparison of the Model S competitors' powertrain cost. I'd enjoy seeing informed data on the cost of a German built aluminum/magnesium V8 with 4 camshafts, intake and exhaust variable cam timing, twin turbo with a complex ZF 8 to 10 speed transmission. The costs to achieve higher levels of fuel efficiency & lower emissions from conventional vehicles is increasing.. while battery costs and power electronics costs are decreasing.
     
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  18. @DT

    Great point and something I've been researching online (rather futilely).
     
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  19. A brand new motor+transmission combo for a BMW 7 Series costs somewhere around $40,000. If you consider that retail and cut it in half, $20,000 is at best in the range of what Tesla is paying to build their drivetrain.
     
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  20. I would be willing to bet that cost less than $10k.

    Typically, the product cost is about 25% of the "retail" price.
     
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  21. He didn't hang up on the reporter, he calmly terminated the interview. There's a big difference. Headline should be less sensationalized.
     
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  22. Elon is too nice for his own good. John just fixed history for him :)
     
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  23. Sensationalism = clicks = ad impressions = blog revenue. Simple economics. In John's defense, the article itself is by no means sensationalistic.
     
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  24. Aren't the editors usually the ones that make the decisions for the headlines and titles. Hey John who is the editor forrrrrr, oh, nevermind.
     
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  25. f you look at computer progress BEFORE Nano technology then batteries WITH Nano HAVE to drop dramatically in weight and price per watt. When you combine this with new cheaper lightweight materials then Musk's predictions are no brainers.Stop big oil and Republicans trying to destroy him. Americans cannot see the wood from the trees because of lobbyists and anti green money being spent by Republicans.
    Wake up America and realize that new technologies sometimes need Government support to get over the first hurdles. Elon is a fellow S.African. We have been indoctrinated by Apartheid and now SEE THE LIGHT. Republicans are dinosaurs and will NEVER get elected again as they are holding America back.
     
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  26. "Republicans are dinosaurs and will NEVER get elected again as they are holding America back."

    We have a saying here in this country Never say never. Never is such a terminal word. Can I quote you on this when a Republican is elected in the future?
     
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  27. Most journalists don't know the EV industry well. John V. is one who does. But think of the hit pieces all over the media from Fox on down. Many will use their ignorance of the EV industry to make EVs look like bad choices or risky decisions.

    The importance of EV development and adoption is one of the most critical things that will occur this century. And they want to solve it by quick interviews, two-year price windows and other shenanigans. This will be a slow, steady growth industry with eventual "big upheaval" once the tipping point is reached and more people choose electric plug-ins.
     
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  28. Agreed. The Barron's article doesn't make a big deal of Musk's ending the interview but other news sources will no doubt sensationalize things by making that part their headline, suggesting that Tesla doesn't have an answer when it comes to the battery cost conundrum. That's why I think Musk should have tried more to educate the reporter rather than brush him off.
     
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  29. I have a mixed feeling about this:

    1. The analyst has a right to ask that question. From an "investor" point of view, that is a very important question to justify the high P/E ratio of TSLA.
    2. Tesla's CEO doesn't have to answer that since this is obviously a major "trade secret" of the company. Whateve the future price is, it is crucial to the Tesla's survive and Mr. Musk doesn't have to disclose it.

    3. Of course, everyone wants to know the answer of that questions, from potential buyers like me (who hope that Tesla can deliver) to EV fans and EV haters... That is a critical question. And I don't think Musk has the answer. He has a "hope" and "goal" that he is working toward, but it is really out of his direct "control".
     
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  30. I'd bet battery prices will drop faster, sooner.
     
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  31. Musk has achieved something very special with Tesla, which should be applauded and supported. This constant barrage of negativity must be frightfully tiring to deal with, particularly when it's obvious they haven't got clue what there on about, what!
     
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  32. (Article significantly cropped - 750 c limit)

    GM’s head of global R&D let his guard down slightly in saying prototype electric cars now being evaluated on U.S. test tracks have triple energy density .. Chevrolet Volt, and close to double ... Tesla Model S.

    “Today there are prototypes out there with 400 Watt-hours per kilogram,” said Dr. J. Gary Smyth, executive director of Global Research and Development, General Motors Company.
    Smyth added the mystery batteries will cost much less than batteries in today’s electric cars and they’ll have a “big impact” on the auto industry and “it completely changes the equation” on cost, range, and vehicle packaging.

    http://www.hybridcars.com/gm-rd-boss-hints-at-tesla-surpassing-batteries/
     
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  33. GM owns a piece of Envia Systems, a battery company.

    On their web site Envia states 400 Wh/kg and $125/kWh. They state 91% capacity remaining after 300 cycles.

    If it was a 300 mile range EV then 300 miles x 300 cycles would be a 90,000 mile battery and taking it down to 80% range would probably be good for the vehicle lifetime. A 240 mile range on an older car should be fine for the used car market.

    http://enviasystems.com/technology/

    That would be a 300 mile range EV for less than the price of a LEAF.
     
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  34. What a stupid interview question. What do you expect, some sort of price guarantee?

    "Here, let me look into my crystal ball and predict the future price of ..."

    His name is Musk, not Kreskin. Know what I'd give for a phone call with him?! Time to go back to journalism school and learn how to stop wasting everyone's time and your own killer opportunities Mr. Alpert.
     
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  35. The larger Model S has a range of 208 miles on it's 60Kwh battery. As the Bluestar will be smaller and lighter it will need a smaller battery too, maybe in the region of 50Kwh. So I think the stated target is within technological reach, the main work to be done is to make such a car profitable.
     
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  36. I don't see a contradiction to comparing battery performance and cost reduction from the readily accepted and conclusively proven concept of Moore's Law. I don't blame Elon for hanging up. Anyone who does not grasp that this technology is still in it's infancy and will mature and become better and cheaper over time is to stupid to waste your time with.
     
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  37. @Michael: Moore's law says that the capability of memory chips and microprocessors doubles about every 18 months. It does not apply to improvements in battery storage capacity, at least historically. they are fundamentally different technologies: one is processing power, the other is energy storage. The rate of lithium-ion cell cost-performance improvement has averaged about 7 percent from 1989 to the present.
     
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  38. Players and Spectators...mostly the latter sharing their opinions - qualified and otherwise. The players are spending their own and other investors money, risking their reputation, and investing the supreme value commodity of all - their time - into what is often grand ambition. Do I know much about batteries? A little. Do I think they will reduce in price like other stuff over time? Probably. Do I know by how much and when? No. But I have the great fortune to spend time with some of the great and the good seeking a away forward with all this so be assured we will make progress. As for the original topic of this piece...good for you Mr Musk - you are a player!
     
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