At Tesla's annual shareholder meeting in June 2018, CEO Elon Musk revealed that the firm's lithium-ion- (Li-ion-) battery cell costs will drop to $100 per kilowatt-hour (kWh) by the end of 2018 (assuming stable battery-material prices), bringing the company closer to the electric-vehicle (EV) industry goal of $100/kWh battery packs (battery-pack costs from Tesla are likely no more than $50/kWh above cell costs, according to Electrek). Tesla has struggled with battery-production bottlenecks at its Nevada battery Gigafactory in the past year but is now ramping up output. Musk announced that Tesla is on track to supply batteries to 5,000 of its Model 3 EVs per week in the third quarter of 2018, which will represent 43% of global EV-battery-capacity shipments. Tesla's Model S and X will account for another 16% of global shipments (excluding plug-in hybrids).

Tesla also expects to achieve 30% higher battery volumetric energy density within two to three years, as it scales up its current lab technology. This performance level could give the Model S (which uses a 130 kWh battery) and Model X (which uses a 100 kWh battery) EVs a driving range of 400 miles per charge—comparable to the range of internal-combustion-engine (ICE) vehicles.

For the overall EV industry, average Li-ion battery-pack prices dropped to $209/kWh at the end of 2017—an impressive 79% decline in seven years, and battery energy density is improving by 5% to 7% annually, according to Bloomberg New Energy Finance (BNEF).

Implications

Tesla appears to have at least near-term cost and performance advantages relative to the growing number of EV competitors in global vehicle markets. For example, Audi has divulged that it will pay about $116/kWh (€100/kWh) for battery cells for its upcoming e-tron Quattro EV, and General Motors has discussed purchasing LG battery cells for $145/kWh for its Bolt EV. Advanced battery research, manufacturing improvements, competitive pressures, and ongoing plans for a massive increase in battery-manufacturing capacity worldwide will continue to drive battery prices lower. Tesla itself has highly ambitious plans to locate at least 10 more Gigafactories worldwide, beginning with China and Europe.

Impacts/Disruptions

Batteries are the main reason for higher up-front costs for EVs relative to costs for ICE vehicles. Further EV-battery price declines and performance improvements are essential to enable the rapid growth in global EV sales that many analysts expect. BNEF projects that average battery-pack prices will drop to $70/kWh in 2030, by which time EVs will be cheaper to make than ICE vehicles, and EV sales could reach 30 million per year. (In comparison, EV sales reached 1.1 million in 2017.) Raw-materials constraints including constraints on lithium and cobalt may put pressure on Li-ion-battery prices, but companies are responding by adjusting battery chemistries and developing cheaper methods to recycle EV battery packs.

Li-ion batteries continue to become increasingly difficult to disrupt as manufacturing scale accelerates. The technology readiness of post-Li-ion technologies that could offer higher performance and lower costs remains low.