Will battery price really go down? As demand increases, price of raw resource will likely rise.

[zer0cool]

http://www.usatoday.com/story/money/markets/2016/04/14/tesla-tech-icons-scramble-lithium-prices-double/83034300/

I think this is something I really didn't take into account before. Sure, technology can get better and more efficient, as the amount of batteries produced increases. However with increasing demand for the raw resource, the commodity price will increase as well!

I mean if EM wants to produce 2x the amount of batteries as the world produces today, then it would make sense the commodity that's absolutely necessary in its production to get more expensive, just like if you suddenly need a lot more oil, oil price will go up.

What do others think?

 

[SageBrush]

Look at a long time line of a resource that is not running out anytime soon. Prices are cyclical as demand and supply swap places as the stronger influence.

 

[Stoneymonster]

Basic economics. As prices increase, incentives for finding new resources and methods increase, leading to more supply and lower prices. The same thing happens with oil (see North Dakota, tar sands, shale, fracking). Something else to consider is what % of the cost of the battery is actually Lithium. If the price of Li triples, but it's only 10% the cost of the pack, it's not that big a deal.

 

[twonius]

The price of lithium is <3% of cost of the battery. So even if it doubles it's unlikely to impact the cost much. Also there's plenty of reserves and untapped supply.

Here's a really good presentation if you're interested in the subject. Skip to 12:00 for the lithium percentage in batteries. 19:30 for a discussion of the current Li supply.

 

[twonius]

Now LI ion battery-cells is another story. They have to build the gigafactory because in order to make 100s of 1000s of EVs per year you'd consume almost the whole world's manufacturing capacity of Li cells (about 35GWh) which approximates to 400k 85KWh packs. (this is also discussed in the above presentation)

 

[mtavel]

Interesting how Tesla says battery prices are dropping, and capacity is going up.... but every time another 5kwh is added to a pack, the price goes up by $3k. Curious.

 

[mikeash]

Interesting how Tesla says battery prices are dropping, and capacity is going up.... but every time another 5kwh is added to a pack, the price goes up by $3k. Curious.

Just last year they replaced the 60kWh Model S with the 70 at the same price.

 

[mtavel]

So we have 3 examples of how capacity increases are handled. with 60 to 70, no price increase.... 85 to 90, +3k. 70 to 75, +3k. Seems like the increasing capacity and decreasing cost to manufacturer is not making it to the consumer. Looks like this is one of the ways Tesla is improving margins.

 

[Vitold]

http://www.usatoday.com/story/money/markets/2016/04/14/tesla-tech-icons-scramble-lithium-prices-double/83034300/

I think this is something I really didn't take into account before. Sure, technology can get better and more efficient, as the amount of batteries produced increases. However with increasing demand for the raw resource, the commodity price will increase as well!

I mean if EM wants to produce 2x the amount of batteries as the world produces today, then it would make sense the commodity that's absolutely necessary in its production to get more expensive, just like if you suddenly need a lot more oil, oil price will go up.

What do others think?

The article is quoting past (not even recent events) performance to predict the future and it treats lithium as it was gold.

This is FUD first published in an oil mag few days ago. I'm surprised it's making it all the way to usatoday.com - usually it stays at places like investorsplace, valuewalk etc. I suspect that someone wants to pump up their lithium investment or maybe big oil wishes batteries were more expensive.

 

[Todd Burch]

I believe the most expensive raw material in the battery packs is the Nickel.

 

[S'toon]

Tesla plans to buy lithium for Gigafactory from nearby Nevada mine

Tesla begins Gigafactory sourcing with lithium supply deal | MINING.com

They locked in contracts with different mines in the past year.

 

[twonius]

So we have 3 examples of how capacity increases are handled. with 60 to 70, no price increase.... 85 to 90, +3k. 70 to 75, +3k. Seems like the increasing capacity and decreasing cost to manufacturer is not making it to the consumer. Looks like this is one of the ways Tesla is improving margins.

Pricing what the market will bear I guess. They've been supply limited for a while on the S (not sure if they still are)

If you go back and look at the old pricing I wonder if they could've ever made money at those levels. I wish I'd had the money back in 2012 because those things have really held their value too. ($60k post-incentives for a 60 that's now worth about $45k? Yes please!). Outside of investor-grade sports cars I don't think even a corolla has that kind of cost of ownership.

2013 Model S Price Increase

 

[eloder]

Interesting how Tesla says battery prices are dropping, and capacity is going up.... but every time another 5kwh is added to a pack, the price goes up by $3k. Curious.

If car options determined actual prices, then cupholders would cost $100 a pop and a mid-quality leather sofa would cost $10,000.

Tesla does share one thing with legacy automakers, all the profit and margin comes from the options and not the base car. As others mentioned, the 60-->70 upgrade had a ton of additions for not much additional cost.

 

[McRat]

Lithium shortage is a common myth. Either nobody in the press does their homework, or they are releasing news to affect stock prices.

Guess which one it is?

The US had to mine enormous amounts of lithium in the Cold War for the nuclear arms race. They only wanted the lighter, rarer isotope so they had to mine a lot. After the Cold War, most US mines shut down due to abundant low cost lithium from other countries.

 

[freds]

The US had to mine enormous amounts of lithium in the Cold War for the nuclear arms race. They only wanted the lighter, rarer isotope so they had to mine a lot. After the Cold War, most US mines shut down due to abundant low cost lithium from other countries.

Hmmm, where did the waste product go after separation?

 

[McRat]

Hmmm, where did the waste product go after separation?

IIRC, they stopped mining well before they stopped selling. When they ran out, they went out of business.

Also, in ~10 years, lithium recycling will be a byproduct of EVs, They will get the copper, cobalt, alum, etc, also. Right now none of the materials is worth recycling yet. Cheaper to mine it.

 

[CHG-ON]

This is an opportunity to invest in raw material. The vast percentage of cost in a battery is in building it, transportation, etc. Unit cost will drop with volume going up, as it does with all economies of scale. This is a fundamental and repeatedly proven theorem.

 

[twonius]

This is an opportunity to invest in raw material.

I'm not sure if we'll actually see supplies running out but to a certain extent I guess you'd be betting that other people think the price will go up anyway which seems to be a common understanding out there. It's not like we started running out of gold 10 years ago either but the price still popped.

I definitely won't be betting against it

Markets can remain irrational a lot longer than you and I can remain solvent.
-A. Gary Shilling

Disclaimer: If I was an expert on commodities trading my sig would say P85+ already.

 

[WarpedOne]

One thing is if you buy raw materials from third parties. More of you is there, higher the price.
Completely different game if you also own the mine.

 

[wdolson]

The price of raw lithium is going up and there is a temporary shortage, but the Earth's crust has plenty. It's more common than lead or tin. In the universe it's one of the most common elements.

The raw materials to make Li-ion batteries are mostly pretty cheap, the big cost is the difficult and time consuming manufacturing process.

I've been thinking about Tesla's increasing margins on the batteries. The price has definitely come down since the Model S was first introduced, but the price hasn't really come down. Watching people scream on this forum when Tesla changes something and now their car is "obsolete", these people would probably have strokes if Tesla actually lowered the price of the car.

Elon has also said it sucks to run a public company because the investor community is watching everything and there have been big complaints about Tesla's ongoing losses. I think they will likely be a lot smaller this year, but keeping the price of the Model X and S up keeps up the profit on each car which in the end helps bring the books a little closer to balanced and gets investors off their back.

Tesla is in a bit of a price catch 22 because of the resale price guarantee. If they cut the price of new cars, that narrows the difference between used and new cars and would likely cause the used car market to decline. Then they have to deal with complaints from people who's car has now dropped in value.

The top of the line battery pack has only grown in size once and that was to accommodate the Model X. The 85 KWh pack wasn't enough and the X90D has a significantly shorter range than the S90D. It may be that the batteries for the 90KWh pack made in Japan really were more expensive. The next capacity increase may be with Gigafactory batteries, which really will be cheaper. Because of the trouble with older Tesla's values and the need to make money, they may not lower the price, but the upgrade may come at no extra cost.

We'll see.