Over a year ago,
announced a way owners could have a full charge in less than 90
seconds: battery swapping. The new technology would be
dramatically faster than the current charge rate of 20 minutes
for a 50% charge and 40 minutes for an 80% charge at Tesla's
Superchargers. But since the announcement, the technology hasn't
yet been made available to owners. Here is what we know about the
missing technology and why investors shouldn't be concerned.
Model S charging at a Supercharger location. Image source:
What is battery swapping?
In about half the time it takes someone to fill up an internal
combustion vehicle, Tesla's battery swapping technology would
replace a Model S owner's battery with a fully charged one -- all
while the driver remains in the vehicle. Tesla said the cost of
switching batteries would be around $50 and that owners would
eventually have to return to retrieve their battery.
Every Model S sold is capable of getting its battery swapped
-- it's just a matter of Tesla actually building the stations.
The stations will cost around $500,000 to build, Tesla says.
That's up considerably from an estimated $150,000 for its typical
The Model S battery is built into the floor of the vehicle.
Image source: Tesla Motors.
Even at a cost of $500,000, however, it would only take 10,000
swaps for Tesla to break even on its initial investment. Of
course there will be maintenance and depreciation costs, but they
are likely to be nominal.
So, what happened?
Summing up the few comments Tesla has made on its plans for
battery swapping since the technology was announced last summer,
the company's priorities have shifted.
"We're a little late on [building a battery swapping station]
because we got preoccupied with other issues," Tesla CEO Elon
Musk said at the California Public Utility Commission's Thought
Leaders program in February.
The most recent comment from Tesla on its battery swapping
comes from Tesla's vice president of business development,
Diarmuid O'Connell, who responded to
in June: "We diverted most of our team and resources to expanding
[the Supercharger] network as quickly as possible. It was mostly
a reprioritization of efforts."
But Jalopnik's Damon Lavrinc pointed out that the
reprioritization "came at a suspicious time."
Shortly after Tesla announced its battery swapping initiative,
the California Air Resources Board decided to nix the extra
zero-emission vehicle, or ZEV, credits for "fast refueling." To
qualify for fast refueling, the state would grant extra ZEV
credits to vehicles that could "refuel" to 285 miles in under 15
minutes. Tesla, which sells its ZEV credits to auto manufacturers
that need them to meet their ZEV requirements, had a financial
incentive to rapidly launch battery swapping stations. But with
the program nixed, there was less incentive. And given all the
items on Tesla's plate, the lack of extra credits may have made
other items more important.
But this argument loses credibility when you consider that
Tesla was already predicting ZEV credits to decline as a
percentage of total revenue, making them less meaningful to
earnings, before battery swapping was announced. And, indeed,
this is exactly what has happened. Straight from Tesla's 2014
second-quarter 10-Q filing, the company illustrated their
We recognized $129.8 million in ZEV credit sales in 2013
which contributed to our gross margin. Although ZEV credit
revenue was strong in 2013, over 90% of ZEV credit sales were
recognized during the first half of 2013, including $51.5
million during the three months ended June 30, 2013.
During the three months ended June 30, 2014, we recognized
$10.0 million in ZEV credit sales and we expect the
contribution of ZEV credit revenue to remain low in the future
relative to our automotive sales as we continue to grow our
sales outside the United States.
Notably, however, Tesla still said in the filing that it "will
pursue opportunities to monetize ZEV credits we earn from the
sales of our vehicles." But the company "[does] not plan to rely
on these sales to be a contributor to gross margin and our
business model and financial plan are not predicated on such ZEV
A smart move?
There is no doubt Tesla management has their hands full. Current
areas of focus include Gigafactory construction, the Model X
launch, international expansion, the Supercharger network
rollout, and recent
that needed to be addressed. Execution is incredibly
Model X (right) next to a Model S. Tesla plans to launch the
Model X early next year. Image source: Tesla Motors.
Just isolating one of these items as an example, Tesla's
Supercharger network, it's clear that prioritization really is
key to progress for the company, as management asserts it is.
Since the very first Supercharger, the company has been
installing the charging stations at an accelerating pace. Since
Tesla first showed off battery swapping last year, the company's
Supercharger network has grown from about 10 locations to 178
Today, owners in the U.S. can drive across the country, up and
down the West and East coasts. Further, Tesla has made
significant progress with its network in Europe and has begun a
network in Asia and Canada. The network of free charging has
significantly boosted the value proposition for Tesla's
If it really is about prioritization, the execution the
company has displayed since it announced battery swapping over a
year ago now is undoubtedly valuable enough to justify dropping
Model S. Image source: Tesla Motors.
Battery swapping would be great, but there's no rush. For now,
Tesla will fare just fine without the technology -- and there are
plenty of other areas the company needs to focus on executing
expertly in order to live up to the market's lofty growth
Warren Buffett's worst auto-nightmare (Hint: It's
A major technological shift is happening in the automotive
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What Happened to Tesla Motors, Inc.'s Battery
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