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Battery Pack Costs Plus Overlooked or Underappreciated Items from Q4 Call

Discussion in 'TSLA Investor Discussions' started by MitchJi, Apr 1, 2017.

  1. MitchJi

    MitchJi Trying to learn kindness, patience & forgiveness

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    I apologize for any mistakees, typo's etc. If I had known how long this was going to take me to do write this... :eek:

    Battery Pack and Gigafactory
    Gigafactory - Production Cars and Storage Growth
    Gigafactory - Car Pack Costs
    The following is clearly less important than using custom equipment and vertical integration for achieving their 30%-50% cost reduction estimates:
    Summarizing they said that the use of custom large scale manufacturing equipment and secondarily colocation (aka vertical integration) are the main reasons for the GF cost reductions. This scale of this equipment is so large, that each instance of anode and cathode electrode assembly is big enough to produce a significant percentage of the worlds current battery production. Designing and building this custom large scale equipment only makes sense because of the massive scale of the GF, and also partially because they need to build more than one of these production lines. So they will setup some kind of production system to reduce the cost and the time required for of producing the succeeding cell production lines.

    In other words the major product is not GF1, it’s GF Production Line 1 (GFPL1). This has huge implications for the flexibility of setting up smaller factories, or setting up factories in phases to obtain most of the cost benefits of a larger factory.

    That means, now that it's completed and working satisfactorally, they will be able to produce succeeding production lines at a substantially lower cost and more quickly than they produced the first one.

    These lines can be installed anywhere that Tesla needs a multiple of one or more of these lines. I believe that it will be possible for Panasonic to produce 2170 cells in Japan, at a similar cost to the cells produced at the GF by doing two things:
    1. Using one or more units of the large scale manufacturing equipment they developed for use at the GF.
    2. Vertically integrating that factory. Obviously converting their existing 18650 line to produce 2170's is relatively trivial. But getting the price down requires much more than that. It probably makes more sense to shift MS-MS 2170 cell production to the NV GF (to take advantage of colocation), and setup and use more efficient production lines in Asia for Asian TM and Asian TE.

    I think that it’s pretty clear the idea to use customized equipment and to use vertical integration were Elon-Tesla’s ideas, and that Panasonic’s hesitancy to invest ended when they were convinced that a 30% cost reduction was a conservative number. So it's more complicated than just scaling production. *Elon-Tesla figured this out using first principles. If it seems obvious why didn't Panasonic figure this out without having to be convinced by Tesla?

    Tesla is now claiming 35% battery cost reduction at ‘Gigafactory 1’ – hinting at breakthrough cost below $125/kWh
    The tripling of capacity (aka alien dreadnaught production), which were also due to **Elon-Tesla innovations will also have an important impact on cell and pack costs. Because they will get 3x the production for the same fixed costs. Tesla originally said that they conservatively expected cost reductions of 30% by 2017 (beating their projections on price), and 50% by 2020. I believe that the additional 20% by 2020 projection came largely from the fact that they were planning on the cost reductions from producing multiple units of the large scale cell manufacturing equipment. If that's correct (what else could it possibly be?) their costs will be even less when they hit 35 GWh of cell production in the current GF, because when they hit 35 GWh production they will have achieved all of the cost reductions originally planned for the 35 GWh goal, but have only incurred about a third of the building costs.

    So I believe that when the GF production hits 35 GWh (2018 or 2019) Tesla's car pack costs will be less than half of $190 per kWh (~50%-55%) or under $95 per kWh. Probably under $85 per kWh. I'm sure some of you are thinking that 50% reduction in costs is crazy, but the second generation TE products have about a 50% reduction in price and they include the invertors!

    I've already pointed out two things which are major advantages for Tesla which were due to Elon Musk. I don't understand the criticism he receives on this forum. IMO he should be regarded in a similar fashion as Lebron James is regarded by the Cleveland fans. IMO he is clearly Tesla's main moat.

    What I believe would be quite exciting is not a cap raise that involves either selling stock or a loan tied to a stock hedge. What's exciting about those options, other than the prospect of a SCTY type dip (two or three more GF's before the first one is complete). I think that they will do something like one of the suggestions here:
    Suggestion for Tesla to accelerate their trajectory for reducing carbon emissions
    Model 3 Production
    The "A team at the A supplier" means that Tesla's business is important to the suppliers. I believe this is a major reason that both the Letters, and Elon sound more confident about starting production in July.
    Model 3 Production Line and CapEx
    1. Tesla is modeling the line to get to 10k per month, but they are saying that the chances of being able actually dial up to that speed are initially are low. It will be really interesting to see the rate they get from doing that.
    2. The concerns that Elon was crazy to suggest the possibility of 100k to 200k by the end of 2017 are exaggerated.
    3. They are not building one line and then replacing the entire line.

    Model 3 Cash Flow and CapEx
    Final version. I think that has nothing to do with the part 3 (probably HUD or something else that is also on the MS-MX) reveal. They are obviously trying to do everything that they can to not cannibalize MS-MX sales. "Model 3 won't have self presenting door handles" (who cares!).

    Elon Musk Down-Sells Model 3 On Twitter In Favor Of Model S
    But that's a little hard to do since Elon is committed to making compelling cars. I believe that the reasons that they are going to delay the full reveal and the opening of the Design Studio as long as they can because the Model 3 will be compelling, especially the prices. For example Elon tweeted that pack upgrades will cost less on the M3. I also believe that they are planning to make some upgrades to the MS-MX, and reduce the prices of some of the options at the same time. They are in an awkward position until they start making profits on the M3.

    No Planned Obsolescence - Ludicrous Mode is a SW upgrade
    Three Dog Day
    These is no planned obsolescence designed into the driveline, unless you consider a million mile design life planned obsolescence :D.

    The million mile driveline, built into every Tesla, is the hardware required for Ludicrous Mode. In other words Elon just confirmed my belief that Ludicrous Mode is a software upgrade.
     
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  2. dennis

    dennis P85D

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    OMG @MitchJi my head hurts- but in a good way. I need a piece of chocolate.
     
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  3. neroden

    neroden Happy Model S Owner

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    FWIW I was thinking planned obsolesence in more pedestrian items like the touchscreen (will it really last more than 10 years?).
     
  4. EinSV

    EinSV Active Member

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    #4 EinSV, Apr 2, 2017
    Last edited: Apr 2, 2017
    @MitchJi -- great post!

    An important assumption in the quote below seems to be that the additional cost reductions by 2020 that Tesla expected (reducing pack costs from <$125/kWh to <$95/kWh) are due to scaling of GF production units. I wonder whether there could be other factors that might contribute to Tesla's expected cost reductions, such as improvements in the technology/process for building GF production units (better/faster robots), improved pack design (both efficiency and manufacturability) as well as improved cell efficiency over time. It seems to me that these factors could contribute to lower pack production costs by 2020, and might be factored into Tesla's predicted >50% cost reduction estimate. Would be interested in your thoughts about that.

     
  5. Snapdragon III

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    This was great. Thanks for taking the time
     
  6. Fallenone

    Fallenone Active Member

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    Very nice post, thanks Mitch!
     
  7. schonelucht

    schonelucht Active Member

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    It's really exciting to see battery pack costs dropping. It really won't take long before the $100/kWh is the norm instead of the exception.
     
  8. MitchJi

    MitchJi Trying to learn kindness, patience & forgiveness

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    #8 MitchJi, Apr 7, 2017
    Last edited: Apr 7, 2017
    • 1. I think that this is the same thing as the bold text.
      2. Between 2018-2020? I think that it's pretty mature technology.
    • 3. You are correct. I missed that! When describing the 30-50% reductions Tesla specified that they didn't include any improvements due to cell chemistry, which means that we should deduct another 5-10% from their pack costs.

      I didn't mean to claim that the only factor is the ramping of production of the cell production equipment, but I believe that accounts for the bulk of the cost reductions.

      I once built some wood containers for holding five gallon glass bottles for hauling spring water in our pickup truck. The two main purposes were to proctect the bottles from breakage and to make it easier to move the bottles. The first one I built took me a lot longer. When it was completed I measured all of the individual pieces and set stops on a chop saw. It took me less time to build the next seven or eight, than it took to design and build the first one.
    We know that the cell manufacturing equipment accounts for a huge percentage of the total cost of Gigafactory. We also know that for the first two sets of equipmentt that they build they not only need to design the equipment, but they also need to design or purchase and set up the equipment (programming robots for example).

    They will still no doubt make incremental improvements in both the cell manufacturing equipment and the equipment that produces that equipment but I believe it's safe to assume that when they have completed the first two iterations, from that point on they will be able to produce the equipment much faster and cheaper than the first one or two sets. At that point they are ready to start producing the equipment for much less, but the unit costs will include the added costs of the first two sets. So building the capacity to produce ~100 Gwh will cost less per unit than building the the capacity to produce 35 gwh, not including the cost savings of the building and land per gwh, which I didn't include in my pack cost estimate.

    Two key takes aways are that they will be able to ramp the increased capacity of the Gigafactory much more quickly and for less money than the the first two sets of units. The main thing to keep in mind (when buying options:D ) is that the Gigafactory production will increase faster than most observers believe possible.

    Another key takeaway is that we don't need to obsess over Tesla's pack costs. I believe that my pack cost estimates, based on $190 -50% ($95) are extremely conservative. When I did my first pack cost estimates I believed that their maximum cost was $170, but there was no point in saying that because almost nobody would believe it. So I provided two figures $190 and $170. When Tesla announced that their costs were less than $190, that proved that at least I was correct with my figure of under $190. How much under $190 do you want to use for a starting figure? I think that they are concealing their costs. So concealing $10-20 makes more sense than concealing $5, why bother?

    Both Tesla and Panasonic said that their 30-50% reduction estimates were conservative. And my estimates didn't include the reductions due to cell chemistry improvements. So you could conservatively start at $185 and deduct another 5% for cell chemistry improvements, plus you could assume 55% based on their recent statements that they were at 35% instead of 30%. The result is $185 x .4 = $74, and that's still a conservative figure.

    So when Elon said that nobody is even close to their pack costs it's not because he's delusional. The reason that I believe that it's a waste of time to obsess about the exact costs because whatever it is, it's way less than their competition. So far ahead that the GM employee in charge of the Volt clearly didn't believe that $190 was even possible.
     
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  9. EinSV

    EinSV Active Member

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    I'm not sure there's much left to say after that.;)

    FWIW, I don't think "scaling of production units" is the same thing as improved production technology. It might be a distinction without a difference with GF1 since massive improvements in production technology and methods were likely necessary to triple the production capacity (maybe that is what you are saying?). Either way, I expect Tesla's continued emphasis on manufacturing technology to continue to bring costs down in later phases of GF1 and future GFs over and above the effects of scaling alone.
     
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  10. MitchJi

    MitchJi Trying to learn kindness, patience & forgiveness

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    #10 MitchJi, Apr 23, 2017
    Last edited: Apr 23, 2017
    Clarification:
    Actually there are three major cost advantages of the GF, the third is the alien dreadnaught technology. Elon said that (paraphrasing) if your competitors require five factories to produce what you can produce with one that they aren't really competition. Can competitors compete on price if they need three GF's to produce what Tesla can produce using one GF?
    Requires correction?:
     
  11. MitchJi

    MitchJi Trying to learn kindness, patience & forgiveness

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    #11 MitchJi, Jun 16, 2017
    Last edited: Jun 16, 2017
    Most of my thoughts are in this thread.

    Responding to bolded part of the sentence:
    The cells are already being produced at a speed that's faster than the rate of fire of a machine gun. Why do you believe that your statement about exit velocity is relevant?

    Now that they've Now that they've designed and built the custom cell manufacturing equipment for the first time, for the first phase, additional phases, and factories, will be cheaper and faster.
    I don't think that it works like that. I think that most of the learning curve is complete, and if you read my posts upthread you will see why I believe it accounts for the 20% (part of the 50% GF1 cost reductions) previously mentioned by Tesla.
    I'm not sure that works, but if it's correct it implies that Tesla's pack cost is "less than $195" -63% ='s under $73 per kWh!
     
  12. SageBrush

    SageBrush Active Member

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    I find Tesla cost cutting pronouncements related to kwh cost in a pack to be an exercise in guesses because for the most part we are not sure if cell or pack is being talked about; and secondly because Tesla usually talks about fractional reduction in cost without specifying the baseline.

    For now I'm presuming baseline is $190 per pack kWh -- but that surely is a moving target.

    So ....
    A "35% reduction" implies a pack kWh cost of $123
    A "50% reduction" implies a pack kWh cost of $95

    The latter in the context of a (maybe ?) 55 kWh Model 3 then means $5200 cost for the pack. Now if only I knew the Tesla motor cost and what a transmission+ICE for a somewhat comparable conventional car costs I would have a frame of reference to say how close Tesla is to killing the ICE.
     
  13. Cattledog

    Cattledog Active Member

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    Under $100/kWh and Tesla will be killing ICEs.
     
  14. SageBrush

    SageBrush Active Member

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    Is there something other than blind faith in your statement ?
     
  15. MitchJi

    MitchJi Trying to learn kindness, patience & forgiveness

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    Incorrect. Tesla has always specified which they are using, which has either been mostly or always pack prices.
    Tesla will be killing ICEs (financially) by the end of 2017 (probably) or 2018 (definitely).
     
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  16. Cattledog

    Cattledog Active Member

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    Costs to then produce their cars power plant and drive train would be lower than the equivalents to ICEs, so Tesla would no longer have to rely on lower total cost to own, superior drive experience and environmental friendliness as their main selling points (which are more important to some, but initial cost is still an issue for many).
     
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