EV batteries are an expensive component of the Tesla car, but they are improving rapidly. GTM Research predicted that the cost of a Lithium-Ion battery would drop by 65% by 2030. Tesla is a leader in this field and will likely continue to make significant improvements. However, these changes will require significant changes to how the car is built and how technology is used.
One example is the 60 kWh battery that was used in the first Model S models. This was not sufficient for long-range transportation. The company is exploring a new battery system and form factor to power the Model 3. Tesla founder Elon Musk announced that Model 3 production will shift from Nevada to Reno. There, it will use bigger, commodity-grade battery cells that are easier to manufacture.
According to Goldman Sachs each year, the cost of solar panels falls by 3%. This should result in a drop in the cost of Tesla's batteries. They are also expected decrease by 3% annually. Due to the increased production capacity, it's likely that Tesla cars will be more affordable. Currently, the Model 3 costs $35,000 before incentives. The Model X comes with an 85 kWh lithium-ion battery pack and costs US$17,000, almost double the Model 3's cost.
The Tesla Gigafactory is expected to reduce Tesla's battery costs by a third. Vertical integration and economies of scale will enable this to happen. While the factory hasn't started production yet it was expected to do so in 2016. In addition to the battery manufacturing plant, Tesla also announced a partnership with Panasonic, a Japanese manufacturer of aftermarket vehicle audio products and speakers. The two companies will team up to create batteries at the Gigafactory.
The Gigafactory currently is not at full capacity. It will not start producing Tesla-branded batteries until fall 2016. Tesla hasn't yet stated the specifics of the plant's production, but it states on its website that it will produce solar power storage unit batteries and the Tesla grid. It is anticipated that 6,500 people will work at the Tesla and Panasonic plants.
According to Tesla's founder, Elon Musk, the company plans to sell 500,000 cars per year. It is an easy number to achieve and will lower the cost of the Model 3, The federal tax credit will end for Tesla after 200,000 cars are sold, but this will only help customers who purchase the car through aggressive subsidies.
California's state rebates, in addition to the federal tax credit cover 60% of the battery's price. There are also incentives for solar-powered batteries. Federal tax credits of up to 30% are available for batteries used in solar-powered cars. The battery cost is expected to fall to $125/kWh by 2020.
If Tesla's battery technology continues to improve, the Model S's price could drop to US$17,000; this is a significant decrease from the current price. However, this is still far from being affordable.