Will Tesla’sTSLA devotion to last decade’s battery system technology undermine its competitive advantage over the latter half of this decade?
At first glance: Yes!
On further reflection: No!
While a simple analysis of the relative price declines of the two major battery form-factors—cylindrical and pouch—would suggest that the likes of General MotorsGM and BMWBMW.DE will produce electric vehicles (EVs) that compare favorably with Tesla’s within the next few years, we think a more complete accounting of the performance characteristics of the battery systems reveals that the competitive crossover-point won’t occur until the early 2020s. In short, Tesla’s lithium-ion cylindrical battery system loses less electricity and contains more energy per unit mass compared to the competition’s lithium-ion pouch battery system – a competitive edge that ARK believes will last into the 2020s.
Tesla dominates the EV market today, thanks in part to its lower cost technology. As shown below, the Model S would have cost twice as much had it been produced with pouch cells instead of cylindrical cells. The earliest Tesla EV, the Roadster, would have cost even more.
Based on ARK research, by adopting the more mature consumer electronics based batteries at launch, Tesla was able to hit an acceptable price point. However, Tesla also chose technology with a less dramatic cost curve decline. As shown below, the cost of cylindrical cells is declining at a rate slower than that of pouch cells. Cylindrical cells had been the standard solution for most consumer electronic products, but the slimmer pouch cells are taking market share as consumer electronics have become thinner and smaller.1 Consequently, pouch cells are experiencing an even more dramatic price decline and will be cheaper than cylindrical cells by 2017.2
While this trend may seem ominous for Tesla, its cylindrical cells have a much higher specific energy (i.e., the amount of energy per mass in each cell). Elon Musk points to the specific energy advantage of cylindrical cells when he faces questions about future cost curve declines.
As seen below, cylindrical cells have roughly 50% higher specific energy compared to pouch cells. Specific energy is particularly relevant for EV applications compared to consumer electronics because extra weight reduces range. Batteries with higher specific energy will use fewer kWh to achieve a given range, therefor lowering the cost of a trip. Moreover, when added to the anode, silicon can increase the specific energy of a lithium-ion battery. Last year with the introduction of the 90 kWh battery pack, Musk said, “It’s a baby step in the direction of using silicon in the anode.”
The third and most significant factor impacting battery capacity is battery system efficiency. In a battery system, balancing and cooling can impact range significantly because of energy dissipation and loss.3 ARK’s research indicates that Tesla’s cylindrical cell battery system is almost 90% efficient, while the Chevy Bolt’s pouch cell battery system is less than 80% efficient. Consequently, Bolt requires a larger battery to achieve the same range as the Model 3. As seen in the chart below, if the battery system efficiency of the Tesla Model S 85 were to drop from 90% to 80%, it would require close to 20kWh in added battery capacity to achieve the same range. That change in battery system size and efficiency would add more than $15,000 to its price.
Taking all three battery characteristics (price, specific energy, system efficiency) into account, cost per kilowatt hour, specific energy, and battery system efficiency, ARK estimates that the cost crossover point between a 200-mile range EV using pouch cells and one using cylindrical cells will occur in the early 2020s. Consequently, all other things equal, we think Tesla will enjoy a five-year completive advantage before the competing battery technology catches up, as shown below.
Of course, Tesla will use a larger format cylindrical cell in future cars,4 and competing car manufacturers will improve battery system efficiency over time. Because the battery and electric drivetrain make up roughly 20% of the total cost of an EV, ARK believes that Tesla should be able to offer either cheaper EVs or EVs with improved features and functionality at the same price as competitors. By 2020, an important differentiator will likely be autonomous features and functionality, an area in which Tesla is currently leading the pack.
- http://www.avicenne.com/pdf/BMDCEAIMR_C_Pillot_Presentation_5th_Israeli_Power_Sources_Herzelia_May2015.pdf ↩
- GM has secured special pricing from LG Chem for $145/kWh for pouch cells. http://insideevs.com/lg-chem-ticked-gm-disclosing-145kwh-battery-cell-pricing-video/ ↩
- http://batteryuniversity.com/learn/article/discharging_at_high_and_low_temperatures ↩
- https://electrek.co/2016/07/28/tesla-gigafactory-tour-roundup-and-tidbits-this-is-the-coolest-factory-ever/ ↩
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