The cost of Tesla’s [TSLA] battery pack system is poised to decline rapidly, allowing the range of a Model S equivalent vehicle to hit 430 miles by 2019. As lithium-ion battery costs continue to decline, electric vehicles will drop in price and/or become more powerful.
ARK estimates suggest Tesla paid an average of $400 per kWh for its battery pack systems in 2013. When the Model X debuts in late 2015, Tesla should be able to deliver battery pack systems for $320 per kWh, and in 2017, Model 3 systems for $280 per kWh. This trajectory is consistent with Tesla’s forecast for a 30% cost reduction by 2017.
Battery pack system cost reductions also will allow Tesla to produce larger batteries with greater range. As shown below, if costs approach $250 per kWh in 2019, Tesla will be able to produce a battery pack system for the Model S capable of delivering a 430 mile range, even with increased battery pack weight – at no additional cost to the consumer.
Instead of improving range, Tesla could produce and sell the Model S, and future vehicles, at lower prices. As shown below, savings from battery pack system cost declines would allow Tesla to cut the price of the 85 kWh Model S by $10,000, or 13%, from 2013 to 2017. Such a vehicle would have the same range as the 2013 Model S, 265 miles. Although battery pack system costs could decline 30% by 2017, the vehicle price is likely to decline by only 13%, because the battery pack system currently represents less than half of the total car price.
Tesla has not released exact prices for future vehicles such as the Model X and Model 3 as of yet. Thanks to declining battery pack system prices, Tesla should be able to sell them at lower prices than consumers expect. Alternatively, it could improve vehicle performance and range at existing prices. Either way, battery pack system cost reductions suggest that auto buyers will derive more pleasure when they hit the road.