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Elon Musk reveals plans to slash electric battery costs, build $25,000 Tesla

Executives said Tesla is reimagining virtually the entire manufacturing process, borrowing from the bottling industry — which runs its production lines smoothly and continuously, rather than one bottle at a time.
Elon Musk speaks at the Washington Convention Center in Washington, D.C., on March 9. Brendan Smialowski / AFP - Getty Images file

Tesla officials, led by CEO Elon Musk, outlined a set of aggressive plans Tuesday to slash battery production costs, which they said will allow Tesla to bring a $25,000 electric battery vehicle to market within three years.

Those were two of the key takeaways from the company's Battery Day, a show-and-tell session following its annual meeting. During the three-hour event, which was livecast from a site by Tesla's assembly plant in Fremont, California, Musk and other executives went into extensive detail explaining how they plan to reduce the cost of batteries — the single most important and most expensive part of an electric vehicle — by 56 percent. They then revealed a variety of new product programs that will be launched over the next several years.

"We're convinced we can make a compelling $25,000 electric vehicle that's also fully autonomous," Musk said.

"The battery stuff is clearly revolutionary and essential to Tesla's goal," Musk said, "accelerating the [transition] to sustainable energy."

Battery costs have come down substantially over the past decade, from an estimated $1,000 per kilowatt-hour in 2010 to less than $150 today, according to research by analysts at Boston Consulting Group, AlixPartners and others. For their part, few manufacturers will discuss hard numbers, considering battery costs the automotive equivalent of a state secret.

The downward curve has "flattened out," Musk said, and will need significant breakthroughs to come down even lower. According to many experts, the figure will need to come in at something close to $70 per kilowatt-hour before battery-electric vehicles, or BEVs, are truly cost-competitive with vehicles using internal combustion engines. For a vehicle like a Tesla Model S Long Range, with a 100 kWh battery pack, the savings would add up to somewhere on the order of $7,000 a vehicle.

To get there, said Drew Baglino, the senior vice president of Tesla Powertrain and Energy Engineering, the company is reimagining virtually every element of the manufacturing process, in part borrowing ideas from the bottling industry — which runs its production lines smoothly and continuously, rather than one bottle at a time.

The changes Tesla says it's developing start with revisions to basic chemistry. Its next-generation batteries will eliminate costly cobalt and rely on various iron and nickel formulations, for one thing, while its cathodes will go from graphite to silicon. The batteries will be somewhat larger, Baglino said. But, more importantly, they will use new production methods, such as the application of dry powders, rather than liquid slurries, to the films wound tightly inside lithium-ion batteries.

Tesla believes the process will allow it to massively reduce the size of future battery plants and eliminate numerous production steps. In the space now used to produce 150 gigawatts of batteries, Musk said, the company expects to be able to turn out a terawatt, or nearly a 700 percent increase — even while reducing its investment.

Not only will the batteries be less expensive, but they also will pack in more energy — "energy density" in EV-speak, Tesla said. That would translate into either a double-digit increase in range or the need to use fewer batteries in vehicles, further reducing its cost.

That would allow Tesla to finally produce a car that could be within reach of mass market buyers, with Musk announcing, "We're convinced we can make a compelling $25,000 electric vehicle that's also fully autonomous."

He suggested that the product could reach the market within around three years, about the time Tesla expects to fully ramp up production of its next-generation batteries, although limited output could begin in around 18 months.

Whether Tesla can deliver is, however, a big question. The automaker has frequently missed production and price targets. It never really delivered the $35,000 base version of the Model S sedan it had long promised. And while Musk outlined plans Tuesday to roll out a near fully hands-free version of the company's Autopilot system, it is well behind there, as well.

While Tesla has yet to prove it can come through with low-priced EVs, it has had no problem finding ways to launch increasingly costly niche versions of existing products. Coming next year, that will include the Plaid Model S, the highest-performance version yet of its flagship sedan, it said.

Originally set to be called Maximum Plaid, an obscure reference to the movie "Spaceballs," the sedan will deliver over 1,000 horsepower and launch from 0 to 60 in under 2 seconds, Musk said. It will feature an equally breathtaking price, $145,000, in line with comparable extreme machines from BMW and Mercedes-Benz.

Musk hinted at yet a third new product, a downsized version of the coming Cybertruck pickup designed for international markets. The initial truck, which will be aimed primarily at the U.S., has already generated at least 600,000 advance reservations, Musk said, adding, "We've stopped counting."

The lengthy presentation by Musk and other Tesla leaders didn't touch on several things that had been expected. There was no mention of batteries that could last 1 million miles, which Musk had previously teased — although the new technology clearly is expected to last longer than today's batteries. Meanwhile, the issue of charging times, a clear obstacle to widespread EV acceptance, was largely ignored.

Wall Street investors weren't impressed. Tesla stock slid early Tuesday when Musk revealed that the new battery technology is still years away. Shares fell by as much as 7 percent in after-hours trading.

One clear concern is that competitors are racing to achieve similar goals. General Motors, in a rare move, revealed that it pays about $145 a kilowatt-hour for the batteries in its Chevrolet Bolt EV but said it expects to reach $100 when its Ultium battery plant in Ohio launches next year. CEO Mary Barra and other officials have hinted at long-term plans that could get it down to around $70.

Meanwhile, a new competitor, Lucid, says its Air sedan, a Model S alternative, will achieve a range of as much as 530 miles next year, or about 30 percent more than the long-range Model S, with only a 10 percent larger battery.