Tesla is now claiming 35% battery cost reduction at ‘Gigafactory 1’ – hinting at breakthrough cost below $125/kWh

Recent studies show that average electric vehicle battery cost dropped 80% in 6 years down to ~$227/kWh. It’s exciting progress for the electric vehicle industry, but it’s still not enough to make long-range electric cars affordable.

You need batteries significantly below the average – battery cell and pack cost – in order to achieve the price point for mass market appeal and that’s what Tesla is trying to do with the Gigafactory. The company was aiming for at least a 30% reduction from its battery cost before the Gigafactory and it now claims a “35% cost reduction” in a new promotional video.

Tesla has never officially disclosed its battery cost beyond claiming to be “below $190/kWh” in early 2016. That was before any battery cell manufacturing was taking place at the Gigafactory.

Since announcing its plans to build the gigantic factory, Tesla guided a battery pack cost reduction of “30%”, but CEO Elon Musk has often hinted over the years that he is confident it could be more than that.

The fact that Tesla is now claiming a “35% reduction in battery cost” in what appears to be a new promotional video displayed in some of its stores seems to be evidence of that.

It’s even more interesting that the claim is being made now that Tesla and Panasonic actually started production of its new ‘2170’ battery cell at the Gigafactory. Tesla CTO JB Straubel said last year that he doesn’t think battery cost will be a limiting factor in Tesla achieving the $35,000 price point for the Model 3 and it’s starting to be clear why he said that.

While Tesla is not disclosing actual numbers, its battery cost structure is starting to become clearer as you link the bits and pieces that they have disclosed.

Starting from the “less than $190/kWh” cost and applying a 35% reduction leads to “less than $124/kWh”. If we assume a 55 kWh battery pack, the battery in the base Model 3 would cost “less than” $6,875. While it would still likely be the most costly component in the car, it’s starting to become reasonable in a $35,000 vehicle.

The “holy grail” of battery cost, meaning when most battery-powered vehicles will be cost competitive with gas-powered ones even before accounting for gas saving, is believed to be $100/kWh. In the past, Musk said that he would be “disappointed” if Tesla doesn’t hit the milestone before 2020, but that was before they accelerated the Gigafactory production plan by two years in order to meet the new Model 3 production plan.

Here’s the video filmed earlier this week at Third Street Promenade Tesla store in Santa Monica – via EVAnnex:

https://youtu.be/0Us9AgX7iGA