Optimistic & Likely scenarios for Gigafactory - Courtesy Lux Reseaerch

Lux Research predicts the Gigafactory’s Li-ion Production will be +50% Overcapacity

By Roy L Hales

Screen-shot-2014-03-18-at-3.43.47-PMTesla motors has already defied the odds. Few in the automotive world expected to see a high priced electric vehicle like the Model S achieve such recognition. It has also dramatically boosted the sales of Panasonic batteries, Now Tesla CEO Elon Musk wants to go further. His $4 billion Gigafactory could dominate global production of Li-on cell batteries. Tesla would have to lop 30% off the $/kWh cost and also reduce the costs of inventory, packaging, transportation and duties. This could happen IF Tesla sells 500,000 vehicles, but a new paper from Lux Research predicts the Gigafactory’s Li-ion Production will be +50% Overcapacity.

“The Gigafactory will only reduce the Tesla Model 3’s cost by $2,800, not enough to sway the success of the planned lower-cost EV,” said Cosmin Laslau, Lux Research Analyst and the lead author of the report titled, “The Tesla-Panasonic Battery Gigafactory: Analysis of Li-ion Cost Trends, EV Price Reduction, and Capacity Utilization.”

“Besides, Lux’s analysis reveals significant overcapacity because Tesla will miss its ambitious target of half a million,” he added.

Tesla’s monopoly in the long range market is nearing an end. Chevrolet, Ford, Volvo and Renault have all noted the model S‘ success. The German companies Audi, Mercedes-Benz and BMW are all planning to expand their plug-in offerings. Several EVs may develop 200 mile ranges in the next few years. This would make Tesla’s current selling point, its range, irrelevant.

Panasonic could rake in more than $15 billion if the Gigafactory is successful, but Laslau suggests it is more likely that the EV giant will sell less than half of its target number.

This would result in a glut of Li-ion battery cels. They could not sell them to the next generation Nissan Leaf or Chevy Volt, as both these manufacturers are developing their own cell and pack architectures. SolarCity could use some cels for residential PV, but not enough to fill the gap.

Lux predicts the cost of Li-on battery packs will drop. Tesla currently pays about $274 per kWh. This could be expected to drop to $245 per kWh naturally, but with the introduction of the Gigafactory prices are more likely to drop to $196 kWh. That represents further cuts to Panasonic’s profits.

This may explain Panasonic’s hesitancy. After months of publicly voiced skepticism, the Japanese manufacturer finally committed to making the Gigafactory’s Li-on batteries. Panasonic will initially commit $200 to $300 million to the deal. By 2020, when the Gigafactory is expected to be in full production mode, Panasonic’s investment may reach $1.4 billion. Alternately, if the deal does not reach the heights that Elon Musk envisions, Panasonic could seek other arrangements.

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