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Electric Cars Courtesy Lux Research

Published on September 4th, 2014 | by Roy L Hales

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Lux Research Predicts +50% Overproduction For Gigafactory’s Li-ion

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September 4th, 2014 by
 

Originally Published in the ECOreport

Courtesy Lux Research

Tesla motors has already defied the odds. Few in the automotive world expected to see a high priced electric vehicle like the Model S achieve such recognition. It has also dramatically boosted the sales of Panasonic batteries, and now Tesla CEO Elon Musk wants to go further.

Musk’s $4 billion Gigafactory could dominate global production of Li-ion cell batteries. Tesla would have to lop 30% off the $/kWh cost and also reduce the costs of inventory, packaging, transportation and duties, and this could happen IF Tesla sells 500,000 vehicles, but a new paper from Lux Research predicts +50% overproduction for Gigafactory’s Li-ion cell batteries.

“The Gigafactory will only reduce the Tesla Model 3’s cost by $2,800, not enough to sway the success of the planned lower-cost EV,” said Cosmin Laslau, Lux Research Analyst and the lead author of the report titled, “The Tesla-Panasonic Battery Gigafactory: Analysis of Li-ion Cost Trends, EV Price Reduction, and Capacity Utilization.”

“Besides, Lux’s analysis reveals significant overcapacity because Tesla will miss its ambitious target of half a million,” he added.

Tesla’s monopoly in the long range market is nearing an end. Chevrolet, Ford, Volvo, and Renault have all noted the model S’ success, and the German companies Audi, Mercedes-Benz, and BMW are all planning to expand their plug-in offerings. Several EVs may develop 200 mile ranges in the next few years, which would make Tesla’s current selling point, its range, irrelevant.

Panasonic could rake in more than $15 billion if the Gigafactory is successful, but Laslau suggests it is more likely that the EV giant will sell less than half of its target number.

This would result in a glut of Li-ion battery cells. Tesla could not sell them for the next generation Nissan Leaf or Chevy Volt, as both of these manufacturers are developing their own cell and pack architectures. SolarCity could use some cells for residential PV, but not enough to fill the gap.

Lux predicts the cost of Li-ion battery packs will drop. Tesla currently pays about $274 per kWh. This could be expected to drop to $245 per kWh naturally, but with the introduction of the Gigafactory prices are more likely to drop to $196 kWh. That represents further cuts to Panasonic’s profits.

This may explain Panasonic’s hesitancy. After months of publicly voiced skepticism, the Japanese manufacturer finally committed to making the Gigafactory’s Li-ion batteries. Panasonic will initially commit $200 to $300 million to the deal. By 2020, when the Gigafactory is expected to be in full production mode, Panasonic’s investment may reach $1.4 billion. Alternately, if the deal does not reach the heights that Elon Musk envisions, Panasonic could seek other arrangements.

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About the Author

is the editor of the ECOreport (www.theecoreport.com), a website dedicated to exploring how our lifestyle choices and technologies affect the West Coast of North America and writes for both Clean Techncia and PlanetSave. He is a research junkie who has written hundreds of articles since he was first published in 1982. Roy lives on Cortes Island, BC, Canada.



  • jeffhre

    One approach of many being considered. Although lab results are not nearly 8 x energy density of Li ion – yet.

  • Joseph Dubeau

    “Lux Reseach” – Research really.

  • jeffhre

    I guess LUX didn’t read the part where Tesla was planning to ramp up battery production investment in accordance their level of actual vehicle production, LOL. If I had realized that “analysts” have no idea what the heck they are talking about most of the time, I would have ignored them and loaded up on Tesla two years ago and be a billionaire now!

    • Offgridman

      “If I had realized that ” analyst” have no idea what the heck they are talking about most of the time “” loaded up on Tesla two years ago ”
      I hope you will excuse the note of sarcasm in this response, but it is in reply to your being a billionaire now..
      Back 3-4 years ago there was no need of any analyst’s to realize that oil is a limited resource. Also that Tesla with their Roadster was the only company getting serious about the production of long range EV’s. So while having taken early retirement I don’t take a lot of risks on individual stocks, what I put into Tesla back then at 27$ per is going to easily take care of the purchase of my Model X when my turn comes up in the next year or so.
      As I said no offense, but just looking at the world and the condition of our natural resources, and what different companies were doing about it made this seem like a no brain needed situation. To h–k with the analysts.

      • jeffhre

        You had to look past the “risks” of a new car company. No offense taken and congrats on a great decision.

        • Offgridman

          As for the risks at the time they seemed very minimal. It doesn’t seem to be the same situation with the three wheeler half motorcycle commuter vehicle that is trying to start production in Louisiana
          But this is coming from someone that eight years ago powered our retirement home with renewable energy rather than pay the utility to run lines in and have the monthly bill. Which at that time was very high risk according to most of the people I know
          At the time it was just hoped for the stock to get to 100-150$ to help cover the cost of the Model S. As a long time believer in renewable energy, and realizing that EV’s have to be a part of the transportation system to take advantage of that energy, it just seemed like common sense that Tesla would be successful in the next 5-10 years.
          With what has happened with it being in the 270-280$ range now, and the release of the Model X that can replace both our car and 4 wheel drive truck during the winter… well. I grant that was just a sheer case of fortunate circumstances

  • Vensonata

    200 mile range, about 50 kwh battery, at $194/kwh= $9700 for the battery. So the rest of the car needs to cost $25,000. That should be doable, to produce a $35,000 EV. By the way, Lux says $2800 reduction. When I run the numbers it’s closer to $4000.

    • Bob_Wallace

      There are mid-sized cars that most people find perfectly acceptable that sell for just over $20k. The Honda Accord, Toyota Camry, Chevy Malibu. Snatch out the ICE ($4k to $7k?) and you’ve got a $15k to $18k car awaiting a $10k battery. Add in a bit more for electronics and you’re under $30k.

      Good quality compact cars such as the Honda Civic and Toyota Corolla start at just over $15k. With a body of that size and quality it should be possible to market a 200 mile range compact EV for under $25k.

      • jeffhre

        Yes, that is with 100 years of a multitude of engineering disciplines working worldwide to lower the costs of production. What the making of EVs has shown us is that snatching out the ICE and putting in batteries is a bit of a one-off trick, done outside of the usual car building supply chain environment, with a very immature supply chain at best.

        It will take a few generations of building, and scaling up IMO, to see that low price potential occur. And will only occur for the OEM’s that are life and death serious about getting it to happen. And if they are serious about it, then their existing platforms (multi-billion dollar investments), will be useless, as they were for the Leaf and Model S.

        • Bob_Wallace

          I don’t see that.

          If Honda, Toyota, whomever wants to make an electric as cheaply as their ICEV models then use the same windshields, doors, seats, all the non-EV parts. Or if you need to redesign the doors/whatever, that is something that is done with every model change. The supply chains are in place. You still get the steel from the same suppliers, you just redesign the presses.

          Kill the ICE/cooling/fuel/exhaust systems. Build the non-propulsion parts just as was being done. Substitute in batteries, electric motors and electronics.

          It would probably be smart to use Tesla’s design and put the batteries flat on the bottom, but the structural part is just like introducing a new model.

          Yes, it would take a “We can do this and we will do this” attitude. But it doesn’t cost more to paint an EV than to paint an ICEV.

          • jeffhre

            “It would probably be smart to use Tesla’s design and put the batteries flat on the bottom, but the structural part is just like introducing a new model.”

            Yes!!! And that’s a $4 billion dollar problem, as Nissan discovered. To do this they would have to be all in, like Nissan and perhaps BMW. And they would have to have the commitment toward not relying on the crutch of already having multiple platforms to use (Ford, GM). And it would take a few generations of effort to drive the costs down.

            “…but the structural part is just like introducing a new model,” just happens to be one of the most dauntingly difficult and complex of all large scale industrial operations ever! There is always the temptation to hide the risk to career behind “bean counters and focus groups.” There is a 100 year of often traumatic history of improving the process.

            And there has to be a champion who is secure enough and dedicated enough to say, we are going to throw that 100 year past out and create a new EV platform.

          • jeffhre

            “But it doesn’t cost more to paint an EV than to paint an ICEV.” Doesn’t it? How do they know unless they have done it before. There is nothing that is left to chance on a program at that scale – competing with 20 – 30 thousand dollar Toyotas? At that scale, a difference of pennies could cost someone a great career.

          • Mike Shurtleff

            EVs are mechanically simpler. They are already being built. As batteries get cheaper and larger economies of scale are reached, EVs will get cheaper. Happening already. Nobody said it was trivial, you mistakenly assume this is some kind of barrier. It’s not. If there is money to be made, then it will be done. …and there is money to be made. EVs/EREVs are going to replace ICEVs. The cost trends are clear.

          • jeffhre

            All true, the trends are clear. Could someone please tell that to what remains of Kodak? Xerox, DEC…

            Or Sparrow, Oldsmobile, SAAB, the old GM and Chrysler, ROE, Studebaker, Baker Electric, Stutz, Rambler, American Motors, Sun, Woods Electric, Fisker, Aptera, Geo, Waverly Electric, and the hundreds of car companies that missed it!

          • Bob_Wallace

            You’ve got a mixed bag of failures there. Kodak pretty much invented digital photography but didn’t have the foresight to develop it and dominate current photography.

            DEC, best I can remember, failed to move into personal computers. Like Wang who owned corporate desktops couldn’t adapt to the big change.

            Studebaker, Rambler, and several other car companies never managed to grab a large enough market share to avoid the down turns or getting bought out.

            Early electric cars lost out to cheap, long range gas cars.

            Fisker and Aptera didn’t have what it takes to get a toehold established.

            I doubt any major car company will fail because they fail to bring an EV to market. They all seem to be ready to produce when they think battery prices low enough to create a lot more demand than what exists today.

          • jeffhre

            I maintain that battery prices are not the whole ball of wax. Building cars is a tough business. Look at the hundreds of fails under Wikipedia’s defunct auto companies. Just business as usual is a huge, incredibly capital intensive, risk to viability, that leads most into corporate death. Will OEM’s be able to catch the falling knife of lowered battery prices, adapt and move on?

            BMW, Tesla, Nissan are toughing it out with what they have, investing billions and learning to be market leaders in a new business. Will the followers easily survive the transition? Will the leaders? It’s not just bolting on cheaper batteries. It’s competing with OEM’s that build industrial systems that churn out vehicles in the hundreds of thousands. It’s marketing EV’s to thousands of dealers who don’t want to invest time and money in cars that return them far fewer servicing hours.

            It’s remaking the huge industrial productive capacities that have been honed, and nearly lost at every economic downturn. And it is convincing investors that paint booths costing hundreds of millions of dollars and drop forges worth billions are worth investing in, during a credit crunch, when bankers are refusing to lend to their own mothers.

          • Bob_Wallace

            If you look back at modern times we’ve seen big changes in what car companies build and sell. Minivans came out of nowhere and dominated for a while. Then it was SUVs. Now it looks like we might be heading to crossovers.

            EVs will use the same drop forges and robotic painters. EVs will use the same glass, tire, mirror and seat suppliers. A single company makes dozens, if not hundreds, different wiper blades. Give them the specs and they’ll give it a product number.

            The big change will be the closing of engine plants and the opening of battery plants. The traction motor is just the alternator, up-sized.

          • jeffhre

            “The traction motor is just the alternator, up-sized.” Electric motors have been used for what a hundred years. What could be special or competitive about them? By the way, Tesla has a book full of motor (sized up alternator) patents and thought it was important enough that as a tiny start-up, they brought them entirely in house. From Taiwanese supplier? A heretofore commodity item – imagine that?

          • Mike Shurtleff

            As Bob says that’s a mixed bag.
            Fisker and Aptera are failed startups in EV/PHEV market. 9 out of 10 startups fail. This is true in disruptively transitioning markets as well.
            Disruptive market transitions occur when new technologies, or business methods, offer: (a) significantly low-cost for the same service (rule-of-thumb 50% less, or half cost), (b) a service or product never offered before and highly desirable, or (c) some combination of the first two.

            Where disruptive market transitions are disruptive:

            1. Obviously, the old incumbent companies are disrupted. They lose most of their market share or fail all-together, due to being stuck in their old way of doing business.

            2. New startup companies are also disrupted. There is constant intense competition in such markets, with new approaches coming to the market as it evolves and the technology involved improves. Success of a startup at the beginning of the market transition is no guarantee they will be there at the end. (The “end” being when the market is saturated again and transitional growth levels off.) [Neither Fisker nor Aptera were disrupted. They just never made the first cut. Fisker produced a Extended-Range EV E-REV) type of PHEV that was more expensive than the Volt and not as good. A lesser product for sale at a higher price will not do well in any market. Aptera ran out of money before they got any product to the market.]

            3. The growth pattern is disruptive to the companies involved. It typically swings between high-rate very profitable production with over-demand …and over-production where profit margins are squeezed and less efficient companies go under. Solar PV has just come out of the latter and may be entering the former. Profits are certainly better right now. I don’t think the EV/PHEV market has really crossed the economic tipping point needed for disruptive growth yet. It will in a few short years. …or maybe it already has and it’s just a matter of being at the bottom of that exponential curve…

            PS There’s no telling the incumbents. They figure it out and/or die off.

          • Bob_Wallace

            Here are two Ford Focuses/Focii.

            One diesel and one electric.

            Propulsion system costs aside which is the more expensive to manufacture?

            (And I’m also leaving off how widely the R&D costs will be spread. A car company could lose their shorts investing in a new ICEV at the same time a $25k or less, 200 mile range EV hit the roads.)

          • jeffhre

            I think that’s true. At least a half dozen middle market purveyors lost their shorts at the same time Ford’s Edsel did. It’s not as hard to do as it seems. Who is willing to take that risk now – to not be Kodak, or Betamax?

          • Bob_Wallace

            Look at the companies with an EV now. Nissan, Toyota, Mitsubishi, Mercedes, BMW…. The question is more who hasn’t spent the development money needed to produce an EV?

            I don’t think any companies intend to fall to the wayside when/if EVs take over. They just don’t see enough profit right now to produce in numbers.

            There’s going to be very significant ICEV market for the next few years. Sell to that market but be prepared to jump when/if the market shifts.

            I’d bet every car company of any size has a battery team and an EV design team that works every day on what the company will build when the front office decides the time is right.

            Most have built at least one EV so they’ve gone through the manufacturing process and likely have their limited edition EVs ‘in the lab’ constantly.

          • Bob_Wallace

            We tend not to talk about China. There’s an excellent chance that China will blow the EV market wide open.

            Interesting article on batteries…

            “Li (NiCoMn) O2 batteries, with their lighter weight and longer mileage, appear to be gaining an upper hand in their competition with lithium iron and phosphate batteries for use in electric cars.

            Dongfeng Travel Bus Company recently purchased 500 electric buses featuring the Li (NiCoMn) 02 battery by Skio Matrix, an electric car maker in China’s Zhejiang province. It has potential plans to acquire another batch by the end of the year, and as many as 10,000 by the end of 2015.

            Safety concerns for the alternative lithium ion battery have been lessened in recent years, thanks to the growing popularity of Tesla cars. The battery received a strong boost further from a joint notice issued by the Ministry of Finance, the Ministry of Industry and Information Technology and the Ministry of Science and Technology setting the energy density goal for electric car batteries at the minimum of 180Wh/kilo. The Li (NiCoMn) O2 battery is the only existing battery capable of meeting the requirement.

            Recent converts include JAC, Chery, BAIC and Zotye, all of which will be packaging the battery in their latest models during Auto China 2014 in Beijing.”

            http://www.wantchinatimes.com/news-subclass-cnt.aspx?cid=1206&MainCatID=12&id=20140904000100

          • jeffhre

            “I’d bet every car company of any size has a battery team and an EV design team that works every day on what the company will build when the front office decides the time is right.”

            Science projects? Risky side ventures which didn’t add much to the business over the long term, except at times incrementally.

            “Sell to that market but be prepared to jump when/if the market shifts.” Jump, LOL! With what, to what, when, how? Successfully? At a scale to make a difference? Fast enough? With enough capital, resources, talent, correctly, into a new market. Ever seen people jump with a factory on their backs? A supply chain? Most just fall down, try to avoid the most immediate consequences, and fail to get back up. Hope that a “Jump” is not required for any incumbent automakers that intend to survive!

          • Bob_Wallace

            The first year batteries cross the price threshold the lag-behind car company makes a lot of the old and some of the new.

            The next year as market for EVs builds they build less of the old and more of the new.

            The car companies will be watching battery prices drop, assuming they will, and will have worked up contracts with battery suppliers. Battery manufacturers, in addition to Tesla/Panasonic, are increasing capacity.

            Will there be some knuckle-headed Board of Directors who won’t have their company ready to go and, perhaps, perish? Sure. That could happen. But it won’t be GM, Ford, BMW, Mercedes, Volvo, Mitsubishi, Fiat, Honda, Toyota, Nissan, Renault, SAAB, Tesla, Toyota, BYD, VW, ….

          • jeffhre

            It might be SAAB.

          • jeffhre

            “The question is more who hasn’t spent the development money needed to produce an EV?” Mitsubishi, Mercedes, Toyota!!! Did Merc. develop a platform for the Benz B-Class Electric Drive? No new platform = a limited appeal conversion = definitely not all in.

          • Bob_Wallace

            You’ve moved the goal post. I pointed out that most companies have an EV. They’ve already worked enough on the technology to be ready to make a serious EV move when they think the time is right. That’s when they quit using an adapted platform and produce one optimized for EVs.

          • jeffhre

            I apologize for the move-able goal posts. I should have explained that that was what I believed “all in” meant. And that the rest is for hobbyists and part timers. For automotive OEM’s that is a dangerous position to be in, when new products can take five years to develop, and the first try may just fail.
            They may look like they have all electric programs ready to go, but the elements that turn out to be lacking could slow them enough to be fatal.

          • jeffhre

            GM used the Delta II platform for the Volt. One would suspect that a platform used for millions of GM vehicles would be simpler to convert, since it is just “optimizing” the platform the Cruze rides on. Yet, GM was about a billion dollars into Volt development costs, when I last checked about 20 months ago. And they are now finalizing design and building production capacity for Volt Gen II. The new 2015 Cruze will be on the “Next Generation” Delta II world platform (Formerly known only as Delta xx), necessitating a change in the Volt platform also. I believe – but could they keep the phased out current Delta II platform for the Volt and perhaps ELR only? Dunno.

          • Bob_Wallace

            A new EV platform.

            That’s basically some steel or aluminum stamped and welded to hold a set of wheels at each end, a battery pack in between, and places to bolt down bodies.

            How expensive could that be? What am I missing here?

            And we are talking “all in”. The cost of a EV body vs. an ICEV body.

            Yes, a bunch of development money. I think GM spent $1 billion on the Volt, a lot more complicated machine. And Ford spent $2 billion of today’s dollars to develop the Edsel.

            Look, I starting from an assumption that we will have a reasonably priced battery pack soon. The $10k pack that Ven suggested. What I’m saying is there can’t be a huge spread between a $10k battery pack + electronics and a new ICE and its required systems. If we’re starting with a $5k premium then a $20k ICEV ‘same model’ should be a $25k car rather than a $35k car.

    • GCO

      Lux reckons that the GF will produce packs at 196 $/kW⋅h, vs 245 otherwise at the same date (that’s a 20% reduction, lower than Tesla’s hope of 30%).
      49$ savings/kW⋅h × 50 kW⋅h = 2450$.
      Lux may be counting about 57 kW⋅h per Model 3, which seems adequate.

      • Vensonata

        Wasn’t it $274 per kwh? Down to $196. So that is 29% reduction I think. Is that what they are saying?

        • GCO

          From the article above:

          Tesla currently pays about $274 per kWh. This could be expected to drop to $245 per kWh naturally, but with the introduction of the Gigafactory prices are more likely to drop to $196 kWh.

          Now, I was merely quoting those numbers, I can’t assess whether they are indeed correct.

          • jeffhre

            Another problem. We do not know if the prices are estimates of what Tesla actually pays for them, or if it represent a number developed from Tesla’s retail replacement cost equivalent price.

  • Vensonata

    Yes, I remember similar predictions about PC’s, laptops, tablets cellphones, iPhones, electric cars, solar panels, wind turbines, hybrid cars, passivhaus, tofu, vegetarians, etc.etc. let us say I take Lux (whoever they are) with a grain of salt.

  • Roger Pham

    This prediction is just like EIA’s grossly underestimating the growth of solar and wind energy. As I can see it, the demand for high-quality and low-cost battery can only go up to parallel the growth in RE. Tesla has a strong lead in term of quality, compactness and low cost of its battery technology that will be highly desirable for other car MFG’s, backed up by Panasonic, the undisputable leader in automotive battery, with vast experience with hybrid battery. Tesla will always be able to sell what ever battery remaining to other car MFG’s and for home installation to backup solar installation. The world will need this kind of battery capacity to realize rapid growth of solar and wind energy!

  • Offgridman

    I can’t understand why Lux is taking this position. Is it possible that they don’t comprehend the coming need for storage on the home and utility level to balance the grid with the ongoing influx of wind, solar, and other renewables

    • Offgridman

      I need to add a note to this that actually makes the Lux position even more confusing.
      It seems that back on 7/15 of this year they predict just the home energy storage market to be fifty billion by 2020.
      Could it be that they have different experts that have conflicts over the way various markets will progress.
      Or is it more of a united team just playing with the numbers to get the result requested

  • Kevin McKinney

    I suspect Phil and Bob are right. This argument is unlikely to proceed from full knowledge of the relevant facts. But I suppose we’ll see.

  • Philip W

    I call bullshit. There will always be use for cheap and high capacity batterys. Even if they couldn´t use all the produced batterys in their own cars (which I also don´t believe) they can still build home battery packs or even bigger ones like they already use in some Tesla Superchargers.

    I will link to his awesome presentation by JB Straubel, Chief Technology Officer of Tesla Motors: https://www.youtube.com/watch?v=zWSox7mLbyE

    • Bob_Wallace

      I agree. Besides there’s no reason to think that Tesla would install all the equipment to pump out batteries at full speed in year one. That’s not what they did when they started manufacturing cars.

      They can build the building, parking lot, and the sort of stuff that’s cheapest to do all at once and then fire up a single manufacturing line within a portion of the building. Add more capacity as demand grows.

      I think Tesla gets the “just in time” concept.

      • jdavies

        I thought I even read somewhere that’s that what they stated they planned to do. Ramp production up gradually, as needed, with there being enough thought gone into the plan to have masses of room for expansion.

        • Bob_Wallace

          I think I read the same.

          • jeffhre

            I think I read the same. Do this pertain to reading skills or critical thinking skills?

          • Bob_Wallace

            On my part – leaky memory. Not to be trusted….

          • jeffhre

            On LUX part?

    • Matt

      I also think that his assumption that there will be little demand for batteries in the stationary market, is way off base. There is at least one company in that space who has stated they they just plan to buy batteries, and focus on the control software.

    • jeffhre

      Looking at the chart at 14:11 there is a green dot at 35,000 cars for 2013. If you put in their production numbers for 2012 and 2014 and follow the curve up to 2020, it makes you wonder if Lux research results may be a little low.

    • Omega Centauri

      I think its more a matter of what price Tesla can get. If they do end up overproducing, they may have to sell for low or negative margins. Obviously if the price is low enough all sorts of storage markets will open up, the question is will Tesla’s production costs be low enough to make a profit at the market clearing price?

      • jeffhre

        I do not think they are planning on getting ahead of battery demand. Panasonic still has existing factories to supply and levelize existing and some growth needs. The US factory is for growth in demand, and I don’t see them building to get ahead of it, but ramping up to meet what Panasonic is not capable of building in Asia.

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