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Mitch's Thread-Starting With Cell and Pack Info, Pack Prices, Storage and GF Info

Discussion in 'TSLA Investor Discussions' started by MitchJi, Mar 6, 2016.

  1. MitchJi

    MitchJi Active Member

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    #1 MitchJi, Mar 6, 2016
    Last edited: Mar 6, 2016
    Introduction:
    I decided to start this thread as a place to share information and opinions, about topics that I believe are under appreciated by most Investors. I hope that having access to this information helps many of you invest successfully.

    I am starting beginning this thread with a large post with information about Cell and Battery Technology, the cost of Tesla's Battery Packs (lower than most of us think), the GF and Stationary Storage Margins. If they don't lower their prices, by the end of 2017 their Stationary Storage Margins should be at least 50%! That figure is derived using the 15% current margin claim. With a target market of $3 billion to $5 billion by 2017!

    I performed these calculations using IMO conservative estimates. For every unknown I am including the reasons for all of my assumptions, so if you think any of my prices are too high or too low you can easily revise my figures and obtain estimates that you feel comfortable with.

    I am using the Powerpack prices for the foundation of my estimates. Having these on the market makes it possible to make much more accurate estimates of their car pack costs than were possible before they were introduced.

    I believe that (reasons provided where I do the calculations) their current Stationary Storage margins are about 25% (not 15%), which I believe is a major reason for their confidence in their 2016 positive cash flow projections. IMO the 25% Stationary Storage margin the only aggressive figure that I use in my calculations. So I am including figures that assume both a 15% margin and a 25% margin.

    Results:
    My "TE 25%-margin" based estimates for automobile pack costs are:
    At the end of 2015 $165 per kWh
    By the end of 2017 $107 per kWh
    By the end of 2020 $66 per kWh

    My "TE 15%-margin" based estimates for automobile pack costs are:
    At the end of 2015 $190 per kWh
    By the end of 2017 $124 per kWh
    By the end of 2020 $76 per kWh

    I believe that the GF is a major reason for JB's optimism:
    Energy Storage Tipping Point Within 10 Years, Tesla Motors CTO JB Straubel Contends | CleanTechnica
    AUTOS: Tesla chief predicts price parity with gasoline-powered cars within 10 years -- Friday, August 1, 2014 -- www.eenews.net
    The 2020s could be the 'decade of the electric car' - Business Insider
    It sounds like Bloomberg's analysts and Elon and JB are living in different universes. This disconnect isn't limited to Bloomberg's analysts. If you believe JB knows what he's talking about, and was not lying (it's exactly the opposite, he and Elon have been understating Tesla' Battery costs for years). IMO this knowledge represents a huge investment opportunity.

    Electric Cars To Cost Same As ICE Within A Decade
    Notes:
    IMO it doesn't ultimately matter which of these price figures you use, because by the end of 2017, they are all very low.

    It's also possible IMO to absolutely confident that:
    1. Considering the increased costs to build legal ICE's (emissions devices, 6-8sp dual clutch transmissions etc.), by the 2017-2019 time frame it will cost Tesla substantially less to build EV's with ranges of about 250 miles, than it costs their competitors to build comparable ICE's, hybrids or PHEV's.

    2. There is absolutely no doubt that by the end of 2017 Tesla will be able to make a substantial profit on a $35k EV with a 250 mile (or greater) range. For comparison Bolt Cell cost is $145 per kWh and my estimates for Tesla Pack cost are $107-$124 per kWh.

    3. When they have sufficient GF Cell's available Tesla will be able to produce MS and MS sized packs for about $6k-$8k less than their current costs.

    4. There is absolutely no doubt that by the end of 2017 Tesla will be able to either have drastically higher margins or drastically lower the prices of their Stationary Storage Products, by using cells produced at the GF.

    For the reductions in costs due to the Gigafactory I used their numbers of "the Gigafactory will drive down the cost of its battery packs 30% by 2017 and 50% by 2020" which they have repeated frequently. They have also frequently said that a 30% reduction by 2017 was a conservative prediction.
    image2.jpg

    Cell and Pack Information:
    Energy Density:
    Elon recently said that the most important Battery Parameter to improve is the Cost. That doesn't mean that improvements in other area's are unimportant, but less important. So Tesla's main advantage in terms of Batteries is that their Battery pack costs are the lower than any existing other producer of OEM quality Automobile Packs. They also have the lowest prices and costs for high quality stationary storage packs.

    And JB Straubel said, in the following talk, at about 10 minutes:
    "energy density is the key pathway to low cost"
    2014 Energy Storage Symposium - JB Straubels Keynote - YouTube
    The costs of a battery pack are mainly dependent on the price of the cell materials, the relative complexity of producing the cells, and the materials and production costs for the pack (enclosure, interconnects etc.). Increased energy density reduces the costs of all of these items by reducing the number of cells required. Of course its possible for there to be some increases in cell related materials and production costs, but since Tesla's main priority is reducing prices, and is the main factor driving their improvements in cell chemistry, it is safe to assume that as they continue to increase the cell energy density that will cause their total pack prices to decline.
    HighEnergyDensityLeadsToLowCost.jpg
    Energy Density - Powerwall example:
    The price for Tesla's 7kWh Powerwall is $3,000 (NMC, $429 per kWh), while the 10kWh one is $3500 (NCA, $350 per kWH). Which is 1.43x the energy (density) for 1.17x the cost. For the Powerwall's on a per kWh basic the materials for the NCA cells, with greater volumetric energy density do cost slightly more, but that slight extra cost is overshadowed by the additional capacity.

    Power (C-rate):
    Batteries - Learn
    Some people believe that Tesla's cells have high power, and that this is important for Tesla or for BEV cars. The Powerwall specs for the backup chemistry (quite similar to the car) has a wimpy C-rate of .33. I believe that the car packs have a higher peak rate (about 4 C), but that still isn't very high. The Chevy Volt Packs are rated conservatively by GM at 7.8C but the Chevy Bolt Pack is rated at 2.33C. The reason that is not important for Tesla (and BEV's in general) is that using Cells with a high C-rate is much less important with larger packs. OTOH high power cells are generally rated to allow faster charging, so using cells with a higher C-rate, would allow faster Supercharging.

    Battery Chemistry Tweaks - Major Advantage:
    I believe that Tesla has a major advantage in developing and testing low level battery chemistry tweaks, due to their recent hiring of Jeff Dahn's team, and their earlier hiring of one of his PHD Students.
    Charged EVs | Tesla hires prominent battery researcher Jeff Dahn

    Why do Li-ion Batteries die ? and how to improve the situation? - YouTube

    The video above from 2013 details his work. In a nutshell it is pretty easy to quickly determine all of the performance characteristics of Li-ion Batteries, except for cycle life. He and his team have figured out a much faster method to determine cycle life, which is a huge advantage in developing and evaluating cell chemistries. I believe that they will continue to physically test cells before using them in production, but being able to quickly test a large variety of cell varieties to narrow the field should be a huge help.

    Larger Cell Format:
    I have wondered why I have seen statements that the new larger cell format would lead to 30% increased pack energy density. It will not. I think that the source of the confusion is the following statement by EM:

    To simplify the calculation in the following example I used an increase of 100%. But with a 30% increase the results would be similar. A circle with twice the diameter has four times the volume. But if the cells have twice the diameter only one fourth the number of cells will fit in a given space, e.g.:
    A 100mm x 100mm space will accommodate 100 cells with a diameter of 10mm (10 x 10), but only 25 20mm diameter cells (5 x 5). So it roughly evens out, four times the capacity per cell, but in a space with the same dimensions only one fourth the number of cells will fit.

    The reason they are changing the cell size is to reduce the cost, probably largely due to decreased pack complexity:
    The GF Will Use Custom Cell Manufacturing Equipment:
    I just noticed that Tesla and Panasonic will be using custom cell manufacturing equipment at the GF, and that will have a big impact on the costs:
    The Calculations:

    Attempting to Convert PowerPack Prices to Car Pack Costs Requires Accounting For Three Variables (I believe that assembling the cells into modules will be almost identical for both types of packs); Enclosure Costs, Cell Costs and Profit Margin:
    PowerPack-MixN-Match.png
    Screen Shot 2015-07-30 at 2.34.18 PM.png

    Enclosure Costs:
    I think that the major differences are that the PowerPack Enclosures are more complex (hot swappable cell modules) and more robust (designed for freestanding outdoor usage for 20-30 years). OTOH they are probably made of steel instead of more expensive aluminum. I'm calling this a wash with these two caveats:
    1. I do not have a high level of confidence in this assumption.
    2. I do not believe it's an important issue, because in addition to the offsetting factors I believe that Tesla is doing an excellent job of driving down enclosure and pack related costs, to the point that I don't think they represent more than 10-20% of their total pack costs.

    Cell Costs:
    The quotes below are from the 2015 Q1 eeking FUD Earnings Call Transcript:
    Tesla Motors' (TSLA) CEO Elon Musk on Q1 2014 Results - Earnings Call Transcript | Seeking Alpha
    The price for Tesla's 7kWh Powerwall is $3,000 ($429 per kWH), while the 10kWh one is $3500 ($350 per kWH). Which means that the Powerwall's with cell "chemistry is quite similar to the car" are priced at 18% less than the Powerwall's with the same cells used in the Powerpack's that are priced at $250 per kWh. I think it's a safe assumption that the car pack cell prices are closer to the cells that are "quite similar", so I believe that splitting the difference (deducting 9% from the $250 per kWh price) is very conservative.

    Stationary Storage Profit Margin:
    Musk Says Tesla Gross Margin to Approach Porsche’s - Bloomberg Business
    http://www.forbes.com/sites/jeffmcmahon/2015/05/05/why-tesla-batteries-are-cheap-enough-to-prevent-new-power-plants/#6629099f3f87
    Teslas Battery Strategy Receives Little Discussion, But It Should
    I think that most investors and analysts assumed that included the 30%-50% GF cost reductions, which doesn't add up, unless they were selling Powerpacks and Powerwalls produced in Fremont at a huge loss (at least 15%)...
    Which means that he must have been referring to setting up the [/b]"automated assembly line at the Gigafactory".
    The 15% figure came from Colin Langan. EM and JB said respectively that "...going to be any problem meeting a 15% margin target" and "it should be in excess of 15%".


    Tesla gives much more precision in their MX and MX profits than on their stationary storage profits, despite the fact that EM stated that "we’re constantly agonizing about cell cost and pack cost". In other words they are trying to avoid disclosing their pack costs by understating their stationary storage margins.

    The only way I can interpret the statements above, that makes sense to me, is this: Tesla set an internal target of 25-30% margins for Powerpacks and Powerwalls that would be produced when they started production on an automated assembly line. As long as they made sure that they were making something like 10-15% on the packs produced by hand in Fremont, they were probably ok with that, as they were always planning on setting up an automated assembly line very soon anyway. So I am deducting 25% from the $250 per kWh price for my conservative, and deducting 15% for my worst case figure. Part of what I mean by "makes sense to me" is that there is no possible way IMO that EM and JB would launch a multi-billion dollar business, with pricing so disruptively low that it's products generate "off-the-hook" demand at substantially lower margins than their stated goal of 25%.

    Even if you believe that the 15% figure is correct for current production, that's obviously before incorporating the 35% (30% + 5% cell chemistry) reductions due to using cells produced at the GF. So by the end of 2017 the TE margins should be at least (15% + 30% + 5% cell) or 50% (they might lower their prices)! With a target of $3 billion to $5 billion by 2017!

    Current Car Pack Cost Results from PowerPack Prices:
    TE 25%-margin: $165.00 per kWh ($250 - 34% (9% cell + 25% margin)
    TE 15%-margin: $190.00 per kWh ($250 - 24% (9% cell + 15% margin))

    Gigafactory Cost Reduction Estimates:
    Tesla's endgame: Why electric vehicles are just the beginning | Utility Dive
    Those figures do not include cost reductions due to cell chemistry improvements:
    Musk: Tesla Gigafactory will produce cells with battery technology improvement over current products | Electrek
    My assumptions are that moderate means a five percent decrease in costs, plus another five percent decrease by the end of 2020.

    Complete TE 25%-margin based estimates for automobile pack costs:
    At the end of 2015 $165 per kWh
    By the end of 2017 $107 per kWh ($165 - 35% (30% GF + 5% cell)
    By the end of 2020 $66 per kWh ($165 - 60% (50% GF + 10% cell)

    Complete TE 15%-margin based estimates for automobile pack costs:
    At the end of 2015 $190 per kWh
    By the end of 2017 $124 per kWh ($190 - 35% (30% GF + 5% cell)
    By the end of 2020 $76 per kWh ($190 - 60% (50% GF + 10% cell)

    This might not happen until after the M3 production ramp , but at some point they will be producing less expensive cells for the MS-MS, in addition to TE and the M3.

    There is a very large market for large UPS's (e.g. Data centers). The author of the quote below worked as a datacenter engineer for Microsoft:
     
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  2. Cattledog

    Cattledog Active Member

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    Mitch - Thanks for your thorough research. I think this are some of the cards they are not showing everyone (speed to market, cost, and energy density improvements), though they haven't been hiding a million sf in the desert. The next 3-24 months should reveal a lot about the trajectory. And as we've all learned, once Tesla does something, even if it's a wee bit late, it's awesome. I expect a similar miracle in the desert. Can't wait until the 60 minutes segment on the GF.
     
  3. ggr

    ggr Roadster R80 537, SigS P85 29

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    I've gotta be misunderstanding something. How can the 25% margin batteries cost less than the 15% margin batteries?
     
  4. MitchJi

    MitchJi Active Member

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    #4 MitchJi, Mar 6, 2016
    Last edited: Mar 6, 2016
    I apologize for the lack of clarity.
    I started with the price of the PowerPacks. I deducted the commonly accepted 15% margin and a more realistic IMO 25% margin in my calculations to get to the cost of the Car Packs.
     
  5. dc_h

    dc_h Member

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    Good analysis Mitch. Would be interesting to see JB's excel sheet with his costs and projections. I tend to think they will fund the GF going forward with the stationary business, allowing Tesla Motors to focus all investments on the vehicle side. This allows them to spend more on R&D for TE and TM and build out the GF without distracting any investment from the Model 3 or a second production facility in Asia or Europe.
     
  6. Fallenone

    Fallenone Active Member

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    Nice post. On the gross margin for TE, I would like to add, for their most recent quarter, the gross margin was nowhere near 15%. Management was slightly surprised by it had positive margin so in reality the GM for TE is close to 0%. Of course there could be transportation of the batteries added in the COGS but I don't think it is conservative to assume they have achieved 15% gross margin on TE just yet.
     
  7. cluster

    cluster Member

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    Thanks Mitch.

    How should we put Elon Musk's following comment into the context?
    "To the best of our knowledge, you don’t have to worry about the Gigafactory as a constraint to Model III"
     
  8. ggies07

    ggies07 Active Member

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    Great analysis and thanks for sharing! Love this community.
     
  9. LargeHamCollider

    LargeHamCollider Battery cells != scalable

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    #9 LargeHamCollider, Mar 6, 2016
    Last edited: Mar 6, 2016
    I'd like to add that while the pack level energy density of new packs is unknown (to me) individual 444 cell modules have gotten significantly lighter since the model s was introduced. Old modules are 60lb, new ones are 52lb (this from an endless-sphere contributor who has torn down multiple Tesla packs), this represents 237wh/kg at a module level if you take Tesla's 90kwh figure at face value. Pretty impressive number.
     
  10. JRP3

    JRP3 Hyperactive Member

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    He's taken apart a 90 pack?
     
  11. Cattledog

    Cattledog Active Member

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    Makes sense. A while back Elon said the Model S had shed a couple hundred pounds due to many incremental improvements. You're not going to get there by making a lighter sun visor or chrome trim. Gotta go where the gettin's good, and that's the battery pack.
     
  12. Quant

    Quant Member

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  13. LargeHamCollider

    LargeHamCollider Battery cells != scalable

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    He did not specify, but I see no reason to think 90kwh modules are heavier than their predecessors unless the cells themselves gained mass; which is possible, but is unlikely to be a big factor imo.
     

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