Although EV batteries can be expensive, their quality is improving quickly. GTM Research forecasted that by 2030, lithium ion batteries would be less expensive by 65%. Tesla is leading the charge and will continue to improve. But, it will take some changes to the way that the car is constructed and how the technology is used.
For example, the initial Model S models used a 60 kWh battery, which was insufficient for a long-range vehicle. The company is currently testing new batteries and a different form factor for Model 3. Tesla founder Elon Musk sent investors a letter informing them that Model 3 production will move to Reno from Nevada. It will use commodity battery cells which are larger and more affordable to make.
According to Goldman Sachs each year, the cost of solar panels falls by 3%. This should lead to a decrease in the price of Tesla’s batteries. Also, they are expected drop by 3% per year. Due to the increased production capacity, it's likely that Tesla cars will be more affordable. The Model 3 is currently $35,000 including incentives. A Model X with an 85 kWh pack of battery packs costs US$17,000 which is roughly twice the Model 3 price.
The Tesla Gigafactory will reduce Tesla battery prices by a third. This will happen through economies of scale and vertical integration. While the factory hasn't started production yet it was expected to do so in 2016. Tesla announced a partnership also with Panasonic, the Japanese manufacturer of aftermarket automotive audio products and speaker. They will collaborate to produce batteries at the Gigafactory.
The Gigafactory has not yet reached its full potential and will not produce batteries for Tesla vehicles until the fall of 2016. Tesla has not stated what the plant will be producing, but the company's website states that it will produce battery packs for solar power storage units and the Tesla grid. 6500 people are expected to work in the Tesla-Panasonic plant.
According to Tesla's founder, Elon Musk, the company plans to sell 500,000 cars per year. This is a simple number to hit and it will help lower the cost for the Model 3. Tesla will lose the federal tax credit once 200,000 cars have been sold. But, this credit will still be available to customers who purchased aggressive subsidies.
California state rebates also cover 60 per cent of the battery price, in addition to the federal credit. There are also incentives for solar-powered batteries. Federal tax credits are available for solar-powered batteries that cost less than 30% of the price. By 2020, the cost of batteries will drop to $125/kWh.
If Tesla's batteries keep improving, the Model S price could fall to US$17,000 which would be a substantial reduction from its current price. This is not enough to make it affordable.