The Tesla Battery Pack Challenge

Perhaps no piece of electric vehicle (EV) technology is shrouded in more mystery than the Tesla battery pack. It’s not the technical details that are secret; it’s the replacement cost.

The Tesla Roadster’s battery pack is rated at 53 kWh, which is enough to power an average North American home for two days. It is assembled from 6,831 individual type 18650 batteries, which are cylindrical cells (the same ones used in laptop batteries) with about twice the volume of an AA battery. These individual cells are connected and packaged with a charge controller, which monitors and levels the charge to avoid damage from over or undercharging. The wholesale cost for the Tesla Roadster pack is about $39K US, assuming a cost of $.74/Wh for Li-ion cells, which I have confirmed with a few Chinese battery suppliers as the typical wholesale pricing for Li-ion cells when purchased in volume. That’s quite a sum for just the batteries.

In addition to the raw cost of the batteries, there is the labor cost of assembling the cells and the cost of the charge controller and housing. The system also incorporates a sophisticated arrangement of sensors and microprocessors and its own liquid cooling system. When we add assembly labor, the controller, and the packaging required to hold 750 lbs. of batteries, we can safely estimate that this pack costs somewhere in the neighborhood of $50K to manufacture.

Tesla is betting on improvements in Li-ion technology (currently estimated at 8% per year) to eventually get the battery replacement cost down to $12K. It’s not clear if this is Tesla’s projected cost or the actual replacement cost; they’ve been very tight-lipped about battery replacement costs. Provided Li-ion technology can maintain an 8% annual level of improvement, it will take about 18 years for the wholesale cost of the battery pack to approach $12K. This doesn’t take into account any political maneuvering or lithium supply issues.

Typically, automotive margins are double the cost of materials when determining suggested retail price, and the margin is generally higher for replacement parts. Let’s just assume Tesla can live with 50% of gross margin on the battery pack.  This means that, in order for the retail price to get to $12K, it would require another nine years for the battery replacement retail pricing to get to this reasonable yet mythical level. And this assumes a continuous cost reduction of 8% for 27 years, which is almost unheard of in the world of computer hardware, except for improvements related to Moore’s Law.

Battery technology (unlike semiconductor density which does follow Moore’s Law) does not improve by 60% a year. A 60% annual improvement is the equivalent of doubling the density of semiconductors every 18 months. In fact, no phenomenon about technology improvement has confused the public more than Moore’s Law. It doesn’t apply to all technological progress, just semiconductor density. It doesn’t even apply to advancements in solar cell technology, which is, technically, semiconductor technology. And increasing the density of semiconductors lowers power consumption for computing tasks only; Moore’s Law has very little impact on the cost and efficiency of electric motors, energy controllers, and batteries, which are the major components driving the cost of EVs.

The lead acid battery, discovered in 1859, has essentially remained unchanged in terms of energy density for the past 150 years. It contains about 0.6% the amount of energy density of gasoline per pound. So 1 lb. of gasoline = ~ 20,000 BTU = 5.8 kWh = 156 lbs. of lead acid batteries. Amazingly, lead acid batteries still represent the best value in terms of $/Wh stored (about $.15/Wh) for any rechargeable battery. This is why they are still the workhorses for high energy/power applications like uninterruptible power supplies, car starter batteries, solar power storage banks, and other applications for which weight isn’t an issue. Lead acid batteries are also more environmentally-friendly to produce and recycle than lithium products.

The lithium-ion battery, first used in consumer products in the early 1990s, has four times the energy density of lead acid, but costs five times as much per watt-hour. Again, this lower cost is why lead acid batteries are still used in golf carts and electric car conversion kits, despite the significant penalty associated with adding weight in mobility applications. But when you need 50+ kW-hours of energy storage to make an EV’s range competitive with an internal combustion vehicle, the weight of lead acid batteries becomes an obstacle. A Tesla’s 53 kWh battery pack would weigh over 3,500 lbs. if made with lead-acid batteries, and the extra weight would cut the Tesla’s range in half. Adding heavy batteries to a mobility application becomes a vicious cycle of self-feeding.

Tesla has not made any specific projections about when the car will need its first battery replacement. Based on my experience with laptops and digital cameras (which use the same lithium-ion battery technology), I would not be surprised if Tesla batteries had to be replaced every four to five years. At the time the first replacement is needed, even if sold at Tesla’s cost, it would be about $34,000, based on my assumption that Tesla’s current battery pack cost is in the $50,000 range. This projection also assumes that battery costs continue to decline at 8% per year. And for Tesla to remain profitable, the MSRP price would have to be twice that amount, or $68,000, which is less than the cost of a brand new Tesla in states like Colorado where incentives and rebates are very generous. If lithium batteries don’t continue to drop in price, or demand for lithium ion-based batteries exceeds supply, then all bets are off as to what it might cost Tesla owners to get a fresh battery pack when the first one has worn out.

It will be interesting to see exactly what happens and how Tesla handles the issue of roadsters and their waning batteries around their fifth birthday. In the mean time, there are some very interesting things happening in the world of batteries and capacitors that could offer more affordable solutions if they catch on.