Tesla’s Battery Technology Powers its Moat – “Faster Than Falling.”
Tesla’s improvements in its battery technology demonstrate the durability of its competitive lead even amidst new electric vehicle announcements from major manufacturers. The goal of ARK’s thematic research and investing is to assess the true signifiers of future value—often overlooked, ignored or misinterpreted—as companies seed disruptive innovation into the marketplace. On this basis, ARK believes that Tesla [TSLA] is misunderstood. The investment-community’s hyper-focus on unit sales overlooks the most important indicator of the company’s ability to win incremental customers (and provide investors with outsized returns) over the medium term: performance improvements. Tesla already delivers superior products, and its ability to widen that advantage by innovating on its battery technology will prove key in enabling the company to unlock its outsized potential.
Tesla’s most recent announcement revealed new battery innovations that are revolutionary. The first is the introduction of the 90kWh battery pack, which marks a change in the cell chemistry used in Tesla’s battery technology. Musk is quoted as saying “It’s a baby step in the direction of using silicon in the anode.” At full implementation, ARK believes that this innovation holds the potential to double vehicle range without increasing the physical size of the battery. Musk notes that battery pack capacity should increase by 5% to 10% each year, this is particularly impressive given that Tesla already substantially leads the field in available range between charges and the cost of that range.
Tesla’s likely trajectory of improvement in range puts recent announcements from competitors into unfavorable perspective. Porsche and Audi [VOW3.DE] have announced electric vehicles that can go 300 miles on a charge, which might be competitive with the Model S if they were available today. Instead, they aren’t expected until 2018 at the earliest. Assuming Musk’s claims for future range improvements hold true, Tesla’s Model S range could reach 375 miles by the time those cars begin production. Tesla has also announced that the Roadster will be upgraded to enable 400-mile range. Improvements across Tesla’s entire product line are apparent when looking at the company’s model history and expected model-future.
Of course range isn’t the only performance characteristic, and Tesla’s innovations are delivering in other areas as well. New battery fuse technology allows the high-end Model S P85D to outperform luxury sedans and supercars alike. The fuse has its own electronics and a lithium-ion battery that “monitors current at the millisecond level and is pyro-actuated to cut power with extreme precision”. This smart fuse helps close the gap that normal fuses have between their operating currents and their max currents, and allows for a 10% decrease in 0-60mph time to 2.8 seconds. Musk points out that with a peak of 1.1g  in acceleration, Ludicrous Mode is “faster than falling.” It is also faster than the Mercedes SLS AMG Electric Drive, which is nearly 240% more expensive than the Tesla.
Tesla’s ability to deliver best-in-market vehicles when competing against manufacturers with decades of automotive experience indicates the superiority of the technology platform. With each new announcement, pay close attention to the battery technology being used, the expected performance characteristics of the product, and the scheduled date for production.
The announcement from GM [GM] and LG Chem regarding the Chevy Bolt is particularly important. The partnership is reminiscent of Tesla’s partnership with Panasonic, and ARK believes that LG Chem has the potential to deliver lithium-ion pouch batteries at a comparable cost to Panasonic’s cylindrical batteries by 2020. The question remains to be seen whether GM can match Tesla’s overall car performance.