In a new note issued today, Jefferies analyst Dan Dolev increased his price target on Tesla Motors to $365 following a new analysis on the company’s battery business. When Tesla first announced its “Gigafactory“, it forecasted a ~30% reduction in battery cost through economy of scale and improved chemistry, but since then Tesla executives revealed that 30% might have been conservative and Jefferies seems to agree.

Dolev estimates Tesla’s current Model S battery pack cost to be at $250/kWh and he thinks the company can bring the cost of the battery cells down to ~$88/kWh and the pack-level cost to ~$38/kWh. The analyst sees Tesla achieving these cost reductions primarily from chemistry changes for the cells and economies of scale for pack production:

We believe that Tesla’s use of an efficient nickel cobalt aluminum (NCA) cathode (i.e. the positive electrode), use of a silicon synthetic graphene anode (i.e. the negative electrode) that has 2-6x the lithium-ion storage capacity of today’s standard graphite anode, and a possible use of water-based anode solvent, are key advantages. […] Our analysis details a potential path to a 30% cell-level cost reduction to ~$88/kWh by using a more efficient lithium-rich nickel cobalt manganese cathode (vs. NCA), doubling the percentage of silicon in the synthetic graphene anode, replacing the liquid electrolyte with an ionic gel electrolyte which eliminates the need for a separator, and using a water-based electrode solvent for the cathode. The Gigafactory, which is expected to begin production in early ’16, should drive down pack-level costs by 70% to ~$38/kWh via economies of scale, supply chain optimization, increased automation, and production domestication.

At $125/kWh, a 60 kWh battery pack, which could allow for 200+ miles range depending on models, would cost $7,500. Such an improvement would make ~$35,000 electric vehicles a much better value proposition.

Side note: Dolev estimates the current battery pack cost of a Model S at $250/kWh. Tesla is already selling its Powerpack, a commercial/utility-scale stationary energy storage battery pack, for $250/kWh. Although it’s not clear how the cost of a stationary storage battery pack would compare to the cost of a vehicle battery pack.

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