Will Tesla Alone Double Global Demand For Its Battery Cells? Page 2

Tesla Model S

Tesla Model S

In addition, Tesla is close to signing production deals with Samsung SDI and other major players to secure even more future production capacity.

LEARN MORE: What Goes Into A Tesla Model S Battery--And What It May Cost

7,000 cells x 21,000 cars

Underlying the frantic efforts of the battery industry to ramp up capacity for Tesla are the cold, hard statistics of the Model S battery system.

Each and every 85-kWh Tesla battery pack contains more than 7,000 automotive-grade cells, all in the common '18650' cylindrical format. 

The entire industry produces about 660 million cylindrical cells a year; the 18650 format is by far the most popular.

By the end of June, Panasonic had already delivered 100 million cells to Tesla, and the Model S production rate is rising. Plans are in place for Tesla to reach an annual pace of 40,000 cars per year by the end of 2014.

1,000th body for 2012 Tesla Model S on display at Tesla Motors factory, Fremont, CA, Oct 28, 2012

1,000th body for 2012 Tesla Model S on display at Tesla Motors factory, Fremont, CA, Oct 28, 2012

40 percent of global capacity

If the company hits those numbers, and if the 85-kWh battery proves as popular overseas as it has in the U.S., by next year the Model S alone will soak up almost 40 percent of global cylindrical battery production.

But the planned short term increases in the production rate for the Model S in 2014 are hardly the end of the story.

By the beginning of 2015 Tesla will have started production of the Model X, which could add another 20,000 cars to the total--or more.

Credible estimates already exist that point to a need for double or triple the global battery production over the next few years, solely to satisfy Tesla's growing appetite for lithium-ion cells.

The reasoning behind this is obvious, once you make some simple assumptions about the potential market for the Model S and Model X. 

Numbers don't lie

Elon Musk has repeatedly pointed out that the North American market represents about one-third of the global market for luxury cars. With Tesla selling around 20,000 cars a year in North America, global demand for the Model S could be closer to 60,000 per year.

Factor in the Model X, starting in 2015, and you can quickly reach a scenario in which Tesla sells up to 100,000 cars a year by 2017.

Tesla Model X

Tesla Model X

That could require something like 640 million cells per year, meaning that Tesla would need to engineer almost a doubling of global cell-fabrication capacity over the next few years.

That's not something that can be done in six months. It took Nissan three years to build its latest lithium-ion cell production plant in Smyrna, Tennessee; funds were committed in June 2009, and the plant went into production late in 2012.

Even if the final sales figures for the Model S and Model X come in substantially below these projections, Tesla needs to get started sooner rather than later.

ALSO SEE: Does Tesla Already Outsell Audi, BMW, Lexus & Mercedes-Benz?

Third-generation Tesla

Thus far, the Model S has been a remarkable success, and is outselling its large luxury rivals.

But regardless of final sales totals for the Model S and Model X, Tesla is moving forward with plans to build an electric car that will compete head to head with the BMW 3 Series and Mercedes-Benz C Class.  

What's known as the Generation III vehicle (and perhaps to be called the Model E) is currently slated to enter production in late 2016--just three years from now.

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