In Tesla 's second quarter, the story remained the same. Demand for its all-electric Model S continued to outstrip supply. In fact, Tesla said total demand is growing faster than total supply. And with the Model X SUV just around the corner, which Tesla expects to eventually outsell the Model S, this trend doesn't look poised to change. Fortunately, Tesla has a plan: Gigafactory, to the rescue!
Perhaps, however, Tesla is just blindly leading us on? This could have been an argument until Panasonic (arguably more knowledgeable and experienced regarding lithium-ion production than any company in the world) admitted that a 30% reduction by 2017 was, indeed, a conservative prediction. And Panasonic is now putting its money where its mouth is, announcing a deal to partner with Tesla in the Gigafactory in July. Panasonic's investment is considerable; during Tesla's second-quarter conference call, CEO Elon Musk said that he expects Panasonic to invest as much as $1.2 billion-$1.6 billion of the $4 billion the company expects to spend on the factory by 2020.
Not only does Tesla view 30% cost cuts to its batteries as conservative, but Musk said during the second-quarter call that he would be "disappointed if it took us 10 years to get to $100 a kilowatt-hour pack." Since Tesla hasn't shared exactly where its costs are today, it isn't clear what percentage of a cut that $100 per kilowatt hour is to today's cost, but as Deutsche Bank analyst Rod Lache noted during the call, it is low enough for Tesla's electric vehicles to reach cost parity with -- and possibly even improve upon -- the cost of an internal combustion vehicle.
The dialogue that followed Musk's bold prediction during the call showed just how sure Tesla is in the future cost cuts of lithium-ion batteries.
Somewhat taken aback by Musk's confidence, Lache commented, "That's a pretty big statement."
But Musk disagreed: "Seems pretty obvious to me."
Tesla chief technology officer JB Straubel chimed in, explaining that even though company is tracking potential breakthrough chemistries for lithium-ion batteries, even these aren't factored in to the path that Tesla sees to reduce its battery costs enough to economically produce mass-market, fully electric vehicles.
Tesla's Model S, with a starting price close to $70,000, isn't affordable for most U.S. citizens.
"But to get to -- to realize the Giga Factory and those cost targets, we don't need some fundamental breakthrough in chemistry and material science. Those things are pretty well understood in front of us," Straubel said.
So, not only does Tesla expect to exceed a 30% cost reduction during the first year of production for the Model 3 in 2017, but it also is baking in plenty of conservatism in this forecast. In other words, Tesla believes it isn't shooting for the moon with the Model 3 and that, instead, this mass-market vehicle is completely realistic.
Of course, there is still room for doubting. But Tesla and Panasonic's growing confidence certainly makes a good case for the enormous potential of the Gigafactory.
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The article Tesla Motors, Inc.'s Gigafactory May Be More Revolutionary Than We Realize originally appeared on Fool.com.
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