Petrol cars are dead in the water, says Tesla CTO waving numbers on the back of an envelope

Battery prices will fall says battery-car maker

Analysis Gasoline-powered cars are a dying breed, and not because everyone will become a tree-hugging fossil-fuel-hating hippie, but rather thanks to cost.

That's according to JB Straubel, the CTO of electric-car maker Tesla, who gave a keynote earlier this month at the InterSolar conference in San Francisco.

Straubel's main argument is that the cost of batteries used to power electric cars will continue to fall, and within just a few years make them cheaper to buy and run than the traditional petrol-driven vehicle.

He noted that the emergence of the lithium-ion battery doubled performance at a lower weight and so made electric cars feasible. "Suddenly an electric vehicle wasn't a golf cart. It was something that was fun to drive. It could handle, because the battery pack didn't weigh 1,500 pounds," he said.

The increasing size of the battery market – even Tesla's small fleet of 60,000 electric cars represents 5GWh, Straubel noted – has led to lower prices. According to one study [PDF], the manufacturing cost of battery packs fell 14 per cent between 2007 and 2014. It estimated that the cost last year worked out at $400 per kWh, but that electric car manufacturers have managed to get that down to $300.

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That $300 figure was predicted in a 2013 report by Navigant Research, which then went on to predict that the price would fall to $180 per kWh by 2020.

Tesla, today, sells its replacement batteries at a cost of between $140 and $200 per kWh ($8,000 for a 40kWh battery; $10,000 for 60kWh; $12,000 for 85kWh).

What all that means is if battery prices fall as expected, Tesla would be able to reduce the price of its Model S by several thousand dollars. That would still not make much difference in its high-end market bracket (if you're spending $55,000 to $85,000 on a car, the chances are that $5,000 is not going to be the main deciding factor).

But it could make a difference in its Model 3 car, which is aimed at the mass market and now due, after some delays, in 2018. Assuming Tesla hasn't already accounted for falling battery prices in its price point of $35,000, a drop to $30,000 would indeed make the car very competitive against its gas-guzzling pals.

As ever, Tesla's super-optimistic outside persona gets lots of attention, but the reality is likely to be somewhat different.

"It's soon going to be cheaper to drive a car on electricity – a pure EV [electric vehicle] on electricity – than it is to drive a gasoline car," Straubel enthused. "And as soon as we see that kind of shift in the actual cost of operation in a car that you can use for your daily driver, you know, from all manufacturers I believe we're going to see electric vehicles come to dominate the whole transportation fleet."

The "I believe" part of that statement is the key aspect.

Over-optimistic part two

Likewise, Straubel waxed lyrical about Tesla's entry into the home power storage market.

The Powerwall home battery was met with wild enthusiasm earlier this year and appears at first to make perfect sense, given the increase in solar technology and electric vehicles, especially in Tesla's home state of California.

But the initial specs were far too low – 2kW continuous and 3.3kW peak power output wouldn't boil a kettle – so Tesla just tweaked the power management and claimed 7kWh and 10kWh.

Even at those levels, the price at which Tesla wants to sell them ($3,000 for the 7kWh and $3,500 for the 10kWh version) equates to a market-priced $350–430 per kWh. And if you wanted to go off the grid rather than simply supplement your existing system, you'd probably need three of them.

But a big part of Tesla's value – not least its share price value – comes in the form of Apple-style hype and belief.

Straubel kept that reality distortion field going when he told the conference: "There’s going to be much faster growth of grid energy storage than I think most people expected. You suddenly get to have energy that's 100 percent firm and buffered from photovoltaics that's cheaper than fossil energy. And we're within grasping distance of that goal, which is very, very exciting."

He reckons it will all happen "in the next 10 years." We reckon it'll be a little longer. ®




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