Elon Musk Promises a $25,000 Tesla in 3 Years—Again

Elon Musk Promises a $25,000 Tesla in 3 Years—Again

What happens when you load more than 200 Tesla shareholders—increasingly rich shareholders—into a Fremont, California, parking lot, and set CEO Elon Musk loose in front of them to talk about the company’s upcoming battery tech? They honk. A lot.

The unusual shareholder meeting, courtesy of the Covid-19 pandemic, had a few big applause—or honk—lines. One: Tesla had begun to design and produce its own batteries, Musk said. The other: Tesla would produce a $25,000 electric vehicle “about three years from now,” according to Musk. The car, he said, would also be autonomous.

It’s no wonder that Musk’s ambitious announcement elicited such an ear-piercing response from shareholders. The design and manufacture of the battery inside an electric car is arguably its most important element. The battery determines how far the car can travel between charges, how quickly it tops up, and how fast it can accelerate. And the battery, which today accounts for about a third of the cost of the company’s Model 3, is the car’s most expensive component. Bring the cost of the battery down by refining its chemistry or hacking its supply chain, and you bring down the cost of the car. Bring down the cost of the electric car, and you make it easier for anyone to buy one.

Musk said the cost of Teslas—the Model 3, Tesla’s cheapest car, starts at $38,000 before subsidies—limits their appeal. “A lot of people want to buy a Tesla, but they simply don’t have enough money,” he said. According to Bloomberg New Energy Finance, fewer than 2 percent of the vehicles sold in the US last year were battery powered.

Tesla’s promises come with the usual caveat: Musk has never been one to underpromise and overdeliver. He told an interviewer in 2018 that Tesla could roll out a $25,000 EV in three years. Tuesday, he pushed that deadline back by two years—because, Musk said, it’s a challenging goal.

But the Tesla battery project appears to be underway. Musk confirmed rumors that the company has built a pilot battery production facility at its Fremont factory. The company also has plans to build out a lithium mine and a cathode plant in North America, moves that will shrink the travel for the materials that end up in batteries by 80 percent. In all, Tesla said, production improvements would reduce the cost per kilowatt-hour of its batteries by 56 percent.

Tinkering with the infrastructure of the electric vehicle business is key to making the cars competitive with their gas-guzzling rivals. Tesla can try to reduce the cost of materials in its batteries, “but eventually, the amount by which you can reduce that cost is limited,” says James Frith, an analyst who heads energy storage research at Bloomberg New Energy Finance. “One of the final levers that you can pull is to try and reduce some of the margins within the supply chain.”

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Tesla has worked with Panasonic, LG Chem, and more recently, the Chinese battery company CATL to produce batteries. But taking control of more of the battery-making process should allow the company to squeeze more savings out of the supply chain.

Still, Tuesday’s battery presentation was filled with plenty of hedging, with Musk and company warning many times that the technology they were presenting would likely take years to implement. Despite sharing plenty of details about its newest battery breakthrough, the company didn’t show off a prototype. Observers noted the slightly subdued tone, a contrast to the bombastic presentations and projections that have occasionally gotten the company in trouble with public officials. Tesla shares nearly 7 percent in after-hours trading.

The native battery effort is proof that Tesla is optimistic about electric vehicles, but sees batteries as possible future supply constraints. Case in point: Musk stressed on Twitter this week that his company would keep working with its battery partners, including with Panasonic at its Nevada Gigafactory.

“Projections of global electric vehicle demand suggest that there will be massive demand in the global supply chain, which will create much more competition,” says Alissa Kendall, a professor of civil and environmental engineering at the University of California at Davis who studies the environmental effects of industry. “You can see why Tesla is nervous, and why they want to support their own battery technology.”


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