After listening to the Q3 Tesla earnings name, there was one factor I seen that Elon repeated 3 occasions, and it was the primary time I’ve heard him say it. It’s that Tesla plans to make a 1,000 GWh of batteries a yr, vertically built-in, domestically. Let’s break down what which means:
- Tesla simply began making battery cells lately and it already plans to make greater than the remainder of the producers within the business mixed. Some have been doing this for 30 years, some are new to the sport like Tesla.
- Vertically built-in signifies that Tesla will:
- Make the battery cells — right here is an replace on their progress on constructing the 4680 batteries.
- Make the battery precursors, just like the cathode and anode supplies.
- Refine the minerals (talked about that is in Corpus Christi).
- Mine the supplies if it turns into the limiting issue (which it isn’t but).
- They have been assured that they may be capable to seize all the incentives within the IRA for constructing batteries, together with:
- Essentially the most well-known and mentioned $7,500 per automobile accessible for customers — which, if Tesla bought 5 million automobiles a yr domestically, can be $37.5 billion a yr to customers.
- $35 a kWh for cell manufacturing — occasions a billion kWh may very well be one other $35 billion a yr.
- $10 a kWh for pack manufacturing — occasions a half billion kWh (assuming half batteries go to vitality storage and half to autos) is one other $5 billion a yr.
- 30% to 50% vitality storage tax credit score for 10 years — virtually ensures giant progress on this market.
Elon Musk additionally talked about that they assume they’re nonetheless on the trail outlined at Battery Day to attain a battery cell price of $70 per kWh with none of the above subsidies.
Additionally notice that Tesla is engaged on a approach for charging suppliers to get the renewable gas subsidies that ethanol will get at the moment.
Moreover, President Biden’s Bipartisan Infrastructure Legislation has direct grants for interstate charging which Tesla will seemingly bid for.
What Does This All Imply?
Let’s begin with the truth that Tesla’s price to produce a Mannequin 3 or Y was round $36,000 final yr and has been falling due to innovation however rising as a result of materials price will increase, so possibly flat general. On the investor convention name, they have been optimistic that general prices will fall subsequent yr. If Tesla goes to develop gross sales dramatically in 2023 (as Austin ramps up manufacturing), they should get the associated fee to the buyer down. Earlier than the Inflation Discount Act of 2022 was handed, and even after it was handed however earlier than Tesla introduced at the moment that they’re assured they may be capable to qualify for the provisions, I believed Tesla would wish to introduce the Mannequin Y Customary Vary and cut back the worth of the Mannequin 3 just a little to develop gross sales. They’re making ok margins that they may afford to do that to stimulate demand after which use innovation to scale back prices to get better the misplaced margin over time.
Now, I feel the impact of the $7,500 credit score will make it pointless to scale back the worth of the Mannequin 3 this yr. I do assume they may wish to as soon as once more launch the usual vary Mannequin Y within the US, as quickly as they ramp Austin to the purpose that they’ve decreased the ready time to just some weeks.
Elon mentioned two-thirds of the batteries will use iron reasonably than nickel within the cathode, with magnesium as a wildcard. This additionally suggests Tesla will reintroduce the usual vary Mannequin Y, since, thus far, solely normal vary autos use iron-based batteries (though, that would change).
The “Mannequin 2” (“Mannequin C?”) Returns
Tesla is far smarter lately about not Osborning current gross sales by asserting the approaching availability of a greater automobile when no person can purchase it anyway and it may trigger demand for Tesla’s current automobiles to weaken. That being mentioned, they did say that they’ve a design for a smaller Tesla that prices half as a lot to construct (~$18,000) that they aren’t asserting at the moment. I feel that announcement may very well be in 2023 or 2024. Had the IRA not been handed, they could have wanted that automobile by 2024 to proceed to drive demand (assuming regulators haven’t permitted the RoboTaxi by then).
All of this implies to me that with the sudden impact of the $7,500 tax credit score hitting in lower than 3 months, gross sales within the US will skyrocket. As Tesla will increase provide to satisfy demand, it’ll ultimately decrease the costs of its automobiles as their prices drop. After a yr or two and assuming elevated competitors from different manufactures (at all times a menace, however up to now, it has been extra bark than chunk), they may announce the next-generation platform, estimated to be priced at ~$30,000, which I name the Mannequin 2 (however Elon has mentioned won’t be named the Mannequin 2).
I final wrote about this automobile virtually 3 years in the past. Wouldn’t it appear like a shrunken Mannequin Y hatchback/crossover? Or extra like a Cybertruck? Or will or not it’s a brand new design, in contrast to something each produced by Tesla? Earlier than the Cybertruck announcement, most individuals (together with me) thought all Teslas would look about the identical. The Mannequin S, 3, X, and Y all resemble one another a lot that many individuals can’t inform them aside. However now we should always have discovered our lesson and realized that each automobile will likely be designed to satisfy its objectives, and if that mandates it look totally different than Tesla’s current automobiles, then so be it.
Disclosure: I’m a shareholder in Tesla [TSLA], BYD [BYDDY], Nio [NIO], XPeng [XPEV], and Hertz [HTZ]. However I supply no funding recommendation of any kind right here.
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