Although EV battery are a very expensive component of the Tesla cars, they are on the rise. 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.
For example, the first Model S models had a 60 kWh battery pack, which is not sufficient for a long-range vehicle. The company is testing a new battery system for the Model 3. Tesla founder Elon Musk sent investors a letter informing them that Model 3 production will move to Reno from Nevada. It will use commodity battery cells which are larger and more affordable to make.
According to Goldman Sachs', solar panels continue to be priced at a 3% annual decline. This should reduce the cost of Tesla's battery, which is also expected to fall by 3% every year. The increased production capacity will likely result in a decrease in the cost of a Tesla car. The Model 3 is currently $35,000 including incentives. A Model X, with an 85 kWh battery, costs US$17,000 and is almost twice the price of the Model 3.
The Tesla Gigafactory is supposed to cut Tesla battery costs by a third. This will be possible through vertical integration and economies-of-scale. Although the factory has not been operational yet, production was set to start in 2016. Tesla announced a partnership to Panasonic, a Japanese manufacturer aftermarket car audio products and speakers. The two companies will work together to manufacture batteries at the Gigafactory.
The Gigafactory is not currently operating at its full capacity and will not start producing batteries for Tesla cars until the fall 2016. Tesla has not stated what the plant will be producing, but the company's website states that it will produce battery packs for solar power storage units and the Tesla grid. The Tesla and Panasonic plant is expected to employ 6,500 people.
According to Tesla's founder, Elon Musk, the company plans to sell 500,000 cars per year. This is a relatively easy goal to reach and will reduce the price 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 state rebates are available to cover 60 percent of the battery cost, in addition the federal tax credit. Incentives are also available to solar-powered battery owners. Federal tax credits are available for solar-powered batteries that cost less than 30% of the price. The cost of the battery is expected drop to $125/kWh before 2020.
If Tesla's lithium-ion batteries continue to improve, the Model S might be priced at US$17,000, which represents a significant price drop. However, this is still not enough to make the car affordable.