What Goes Into A Tesla Model S Battery--And What It May Cost Page 2

2013 Tesla Model S

2013 Tesla Model S

In 2009, when Tesla started design work on the Model S, cell costs for 18650 cells were already estimated at $200 to $250 per kWh.

In December 2012, the I.E.K. reported that prices for 18650 cells were collapsing. As of the third quarter of 2012, when Tesla began Model S production, they had fallen to $120 to $200 per kWh.

Price collapse accelerates?

An extensive review of advertised prices for these cells from Chinese wholesalers shows that the price collapse reported last year (alluded to by Musk in his truncated interview with Barron's) is not only real, but may well have accelerated.

Because these suppliers will only provide their lowest price quotes to deep-pocketed industrial buyers, and because prices change from day to day, much uncertainty remains over current prices for these batteries.

The Panasonic cells that Tesla uses are advertised with "best pricing" that ranges from $0.80 to $2 and up per cell.  For context, a Panasonic 3100mAh cell at $2 represents a per-kWh cost of roughly $179.

Further evidence of a widespread collapse of prices, well beyond what the I.E.K. reported in 2012, can be seen in prices for generic Chinese Ultrafire 4000mAh cells.  

Even in small quantities, these cells are only about $75 per kWh, including free shipping to the U.S.  While these cells are from a generic brand, they are much more energy dense than the 3100mAh cells that Tesla uses--and could theoretically represent next-generation technology. 

It is not implausible that extremely inexpensive cells like these exert continued downward pressure on prices of the less advanced but higher-quality 3100mAh cells that Tesla uses. 

Estimating Tesla's costs

The market for lithium-ion cells is fundamentally a black box. Only companies that purchase huge quantities of these get the lowest available prices.

Depending on which battery-pack size it builds, Tesla uses about 6,000-8,000 cells per pack.  Because it is nowbuilding 400 or more cars per week, that would be in the neighborhood of 3 million cells per week.  

Tesla Motors - Model S lithium-ion battery pack

Tesla Motors - Model S lithium-ion battery pack

In fact, it's likely that Tesla Motors may already be one of the largest buyers of these cells in the world.

In addition, the company's simplifications to its cell design likely saves a fair chunk of change.

It's not unreasonable to think that less advanced, but high-quality 3100mAh cells are now indeed selling for $2 per cell (or $180/kWh). If the cheaper Tesla-designed, cap saves even a dime per cell, that would cut the price to around $170 per kWh. 

$170/kWh too conservative?

Given clear indications that prices for 18650 lithium-ion cells have continued to collapse, to levels far below those indicated in the 2012 I.E.K. report, there remains some question as to whether $170 per kWh might even be too conservative an estimate.

With that, we can look to the other statement made by Musk before he hung up on Barron's

Specifically, he mentioned that "improvements will cut the cost of the Model S's battery to $10,000-$12,000."

The per-cell price required to get pack cost down to that level is about $1 per cell. 

If Chinese ads are to be believed, that price that might already be available to the right customer.

Do you think Tesla Motors is one of those right customers?

Thomas Fisher is a performance car enthusiast and Tesla Model S fan who lives in Southern California. He works as a business consultant and occasional writer, and he is presently an investor in Tesla Motors [NSDQ:TSLA].


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