Although they are an expensive part of the Tesla car's electric vehicle, they are getting better. GTM Research predicts that by 2030, the cost for a lithium ion batteries will drop by 65%. Tesla is leading the way, and will likely continue to make improvements. But, it will take some changes to the way that the car is constructed and how the technology is used.
A 60 kWh pack was included in the Model S first models, but this is too small for a long-range vehicle. The company is exploring a new battery system and form factor to power the Model 3. Tesla founder Elon Musk wrote to investors to announce that Model 3 production would move from Nevada to Reno. The company will use smaller, more common battery cells, which are cheaper to produce.
According to Goldman Sachs solar panel prices continue to fall by 3% per year. This should lead to a decrease in the price of Tesla’s batteries. Also, they are expected drop by 3% per year. It is possible that Tesla's prices will fall due to increased production. The Model 3 cost $35,000 before incentives. However, a Model X with an 85 kWh battery pack costs US$17,000, which is about double the cost of the Model 3.
The Tesla Gigafactory is designed to reduce Tesla battery costs by a quarter. This will happen through economies of scale and vertical integration. Although the factory has not been operational yet, production was set to start in 2016. In addition to the battery manufacturing plant, Tesla also announced a partnership with Panasonic, a Japanese manufacturer of aftermarket vehicle audio products and speakers. Both companies will be working together to build batteries at Gigafactory.
The Gigafactory has not yet reached its full potential and will not produce batteries for Tesla vehicles until the fall of 2016. Tesla has not stated what the plant will be producing, but the company's website states that it will produce battery packs for solar power storage units and the Tesla grid. The 6,500-person expected workforce at the Panasonic and Tesla plants is 6.
Tesla's founder Elon Tesla claims the company intends to sell 500,000 cars each year. That is a fairly easy number to hit, and it will help to ease the cost of the Model 3. The federal tax credit will end for Tesla after 200,000 cars are sold, but this will only help customers who purchase the car through aggressive subsidies.
California state rebates provide 60 percent coverage on the battery price in addition to a federal tax credit. The state also has incentives available for solar-powered batteries. The batteries used in solar-powered vehicles are eligible for federal tax credits equal to 30 percent of their price. The cost of the battery is expected drop to $125/kWh before 2020.
Assuming that Tesla's batteries continue to improve, the price of a Model S could drop to US$17,000, which is a significant reduction from the current price. However, this price is not sufficient to make the car affordable.