Lux: Tesla likely to miss 2020 vehicle target by >50%; Gigafactory to bring only modest reduction in costs, >50% overcapacity
Lux Research forecasts that Tesla Motors’ Gigafactory—the announced new 35 GWh lithium-ion cell production facility that is the target of hot competition between five states (earlier post)—will bring about only a modest reduction in Li-ion battery costs and create significant overcapacity, given likely Tesla EV sales in 2020 of less than half of the company’s targeted 500,000.
Tesla and its partner, Panasonic, will contribute about 45% and 35%, respectively, of the initial $4 billion required to build the Gigafactory, proposed to go on-stream in 2017. Lux Research’s new report—“The Tesla-Panasonic Battery Gigafactory: Analysis of Li-ion Cost Trends, EV Price Reduction, and Capacity Utilization”—projects sales of some 240,000 Tesla cars in 2020, leading to razor-thin margins to Panasonic and 57% overcapacity.
The Gigafactory will only reduce the Tesla Model 3’s cost by $2,800, not enough to sway the success of the planned lower-cost EV. Besides, Lux’s analysis reveals significant overcapacity because Tesla will miss its ambitious target of half a million.—Dr. Cosmin Laslau, Lux Research Analyst and lead author
As a counterpoint, Deutsche Bank analyst Rod Lache on 11 August upgraded the rating for Tesla stock from “Hold” to “Buy” in consideration of the company’s possibly reaching the 1.0 million cars per year mark by the year 2025.
Lux Research evaluated Tesla Motors’ Gigafactory plan and its consequences for the EV industry. Among the findings:
Cost-cutting is key, but the Gigafactory does not do enough. Battery prices need to fall significantly for plug-in cars to break beyond their current niche. The OEMs backing the US Advanced Battery Consortium are targeting $125/kWh by 2020—more than four times lower than $520/kWh, the price Ford paid for its Focus EV battery packs. Currently, Tesla has the lowest cost—about $274/kWh, according to Lux Research analysis. Tesla founder Elon Musk aims to cut cost by 30%, on the strength of scale, location and technology, lowering the price to $196/kWh with the Gigafactory.
Panasonic faces risks. The Gigafactory might seem like a great win for Panasonic, ahead of rivals such as Samsung SDI, LG Chem, and NEC; in the optimistic scenario of Tesla attaining its targeted half a million EVs, Panasonic could pull in more than $15 billion between 2017 and 2020. But at the more likely 240,000 EVs, as estimated by Lux Research, Panasonic would take in only $7 billion on its likely investment of $1.4 billion, with questionable margins.
Gigafactory will lead to huge overcapacity. The Gigafactory, proposed to be built at a cost of $5 billion, is designed to make 35 GWh Li-ion cells for half a million EVs. But in the likely event of much lower sales of 240,000, overcapacity will be to the extent of 20 GWh. This 57% overcapacity is unlikely to be filled either by rival carmakers or Tesla’s own plans to sell some stationary battery packs to developers such as SolarCity (Tesla’s Elon Musk is chairman) for residential photovoltaic integration and other uses.
The report is part of the Lux Research Energy Storage Intelligence service.