Navigant Research Blog

Six Questions Regarding Tesla’s Gigafactory

— February 27, 2014

This week, Tesla revealed the first details about its plan to build an enormous battery factory to provide cells for its future electric vehicles.  Among the revelations: the factory will be powered primarily by its own solar and wind power parks; it will produce more than 50 gigawatt-hours (GWh) of battery packs a year; and it will cost $6 billion to build.  To kick things off, Tesla also filed to sell $1.6 billion worth of convertible bonds today.

While these are intriguing details, there’s still a lot to determine about what this factory will actually look like.  Here are my questions about the Gigafactory:

Why isn’t California one of the states being considered for the plant?  The company named Nevada, New Mexico, Arizona, and Texas as potential host sites.  To build the batteries in a different state and then ship them to California, even by rail, will add considerable cost to the batteries.  Why not locate the factory at or near the company’s vehicle assembly plant in Fremont, California? My guess is that environmental regulations for such an enormous factory are one negative factor weighing against California.  That leads to a second question: Where will the cars be built?  The batteries coming from this factory will be going into Tesla’s next-gen passenger car, not the Model S or Model X.  That means that a car factory could also come along with the battery plant.

How much wind and solar will be needed to supply power to the plant? A battery factory making 50 GWh of batteries will require enormous amounts of electricity – some for the actual making of the batteries and some for the initial charging of the batteries that is the last step in the manufacturing process.  This could require as much as 1 GW of renewable energy projects.  Is the price of those installations factored into the stated $6 billion cost of the factory?

Where will the extra 15 GWh of batteries come from? In the slides that Tesla distributed, the manufacturing capacity of cells was stated as being 35 GWh.  But the manufacturing capacity of packs was stated as being 50 GWh.  So where will the extra 15 GWh of cells come from?  From other battery company factories throughout the world? From more Gigafactories?

Why is this factory so cheap? $6 billion doesn’t sound very cheap.  But it actually pencils out to a little more than two-thirds the cost, on a per GWh basis, of other large battery factories.  Clearly, the large scale of the factory will make equipment purchases cheaper.  Nevertheless, the estimated cost of the factory seems extremely low and brings into question whether Tesla and its battery partners have some new manufacturing innovations up their sleeves.

Why wasn’t Panasonic mentioned in the news release? Most observers assume that Tesla will build the factory with Panasonic, which makes all the cells for the Model S and the upcoming Model X.  However, the news release only stated that the car company’s “manufacturing partners” will help finance and build the factory.  Is it possible that another battery supplier is inserting itself in between Panasonic and Tesla?

How much will the cells cost once the factory is up to scale? Tesla CEO Elon Musk has stated in the past that Tesla buys its cells for between $200 and $300 per kilowatt-hour (kWh).  The slides distributed with the Gigafactory announcement claim that the facility will be able to cut the costs of the battery packs by 30%.  But how much of that comes out of cell costs versus price cuts in the other equipment in the pack?  Does this get Tesla down to $175 per kWh? To $100 per kWh?

There’s no denying that this is a bold venture.  If the company manages to follow through on these plans, it will construct the biggest factory in the world (not just for batteries, but for anything).  And it will yet again echo Henry Ford’s spirit with a 21st century version of the original megafactory, the River Rouge complex.

 

Why Tesla Should Sell Trucks

— December 13, 2013

If you want to attract media attention for an idea, attach Elon Musk’s name to it.  Any technology he proposes taking on instantly attains a higher profile, whether it’s autonomous vehicles, high-speed public transport, or space travel.  Musk is also not afraid to buck conventional wisdom: he announced that Tesla would explore battery swapping immediately after battery swap pioneer Better Place declared bankruptcy.  Now, you can add electric pickup trucks to the list of challenging new transportation technologies that Musk wants to tackle.  A Tesla pickup truck would not have quite the same cachet as a Model S, but Musk says he wants to develop one because of their popularity in the United States.  He has mentioned modeling a Tesla electric pickup after the best selling Ford F series pickups.

The pickup truck vehicle segment actually seems like a good target for better fuel efficiency in the United States.  In spite of the move toward more fuel efficient passenger cars, pickup trucks continue to be among the top-selling vehicles in the United States, with the Chevy Silverado and Dodge Ram set to join the Ford F series among the top 10 best-selling cars in the United States in 2013.  Some of this may be due to pent-up demand, as these are quite likely to be work vehicles for contractors, landscapers, and other businesses that have been in a belt-tightening mode following the global recession of 2009.  But since pickup trucks are consistently big sellers in the United States, they represent an obvious target for any efforts to reduce overall transportation fuel consumption.  Musk specifically says he isn’t interested in developing an electrified commercial truck, like those used by Fedex or UPS, since that market is much smaller.   In 2012, the Ford F series, Dodge Ram, and Chevy Silverado combined for sales of 1.36 million.  By contrast, Navigant Research projects that U.S. sales of all medium and heavy duty trucks – the primary models sold to commercial users ‑ will be just over half a million in 2013.

Thanks, No Thanks

However, as I found researching for an update of the forthcoming Navigant Research report, Hybrid and Electric Trucks, U.S. automakers are not terribly interested right now in electrifying this vehicle segment.  GM announced it will be discontinuing all of its hybrid truck models in 2014.  Chrysler produced 35 Dodge Ram truck plug-in hybrids for testing with utility customers but has not announced any plans for commercial production.  Ford has announced that it is working on a hybrid system for its rear-wheel-drive pickups and SUVs; however, the company does not plan to introduce a commercial version until the latter part of this decade.

The reason is simple: low sales.  GM reported 2012 sales of around 2,800 Silverado, Tahoe, Escalade, and Yukon hybrids.  The major challenge for this market is that the businesses buying these cars are very price-sensitive and have rigorous performance requirements.  Edmunds found that the 2013 Silverado hybrid had limited towing capacity and fuel economy compared to the (non-hybrid) Dodge Ram, which cost thousands less.

The main companies in this space now are XL Hybrids and VIA Motors, both startups.  XL Hybrids is developing a hybrid drive that can be retrofit onto a Chevy Express van chassis or a Ford E Series chassis.  VIA Trucks has developed a plug-in hybrid powertrain to be integrated into Class 2 light trucks and vans, like the Chevy Silverado and Chevy Express van.   The company just announced it was beginning production in its factory in Mexico.  These two companies are still in the very early stages of producing commercial products, and it remains to be seen if they can succeed where the big OEMs could not.

No doubt Elon Musk will learn from these examples.  Succeeding in this market will require a vehicle with impeccable performance and significant fuel savings benefits, at a reasonable price point.

 

Don’t Get Too Fired Up Over Tesla Mishaps

— November 14, 2013

Despite being named 2012 Car of the Year by Automobile Magazine and Yahoo! Autos, and chosen as one of Time magazine’s best inventions of 2012, recent media headlines in 2013 haven’t been quite as kind to Tesla Motors’ Model S.  Over the past two months, three fires in Tesla’s vehicles have gained widespread attention.  The fires have significantly contributed to the 20% slide in Tesla’s stock price this month, although the stock is still up more than 300% since the beginning of 2013.

Pushing aside the media hysteria, let’s take a look at the facts.  On average, 17 automobile fires are reported every hour in the United States (194,000 on average every year between 2008 and 2010), killing an average of four people every week.  Of particular importance, mechanical or electrical failures or malfunctions were reported in roughly two-thirds of automobile fires.  As for the Tesla fires, all three involved car crashes; the fires did not begin spontaneously as the result of electrical failures or malfunctions, and in all three incidents the driver walked away without injury.

Technology Comparison

For a deeper comparison of electric and internal combustion engine (ICE) vehicles, it’s useful to analyze the safety of the vehicles more generally.  This can be achieved through analyzing vehicle fires and deaths per billion miles driven.  EVs are approaching 1 billion miles driven.  The Chevrolet Volt (300 million), Nissan LEAF (323 million), and Tesla Model S (100 million) represent the majority of these electric miles driven.

According to the U.S. Federal Highway Administration, roughly 90 highway vehicle fires and 0.15 highway vehicle fire deaths occur in ICE vehicles per billion miles driven.  Conversely, EVs have had a total of four reported fires and zero fatalities for the first near one billion electric miles driven.  Thus, ICE vehicles are 22.5 times more likely to catch on fire than EVs.  It’s also important to keep in mind that EVs are the first models of their kind, essentially experimental vehicles, and have still been able to far surpass the safety record of ICE automobiles.

Non-Explosive

So why is there so much attention and scrutiny on Tesla? Considering the frequency of car fires, perhaps the fact that Tesla went so long without having any is the main reason for the Model S making headlines.  Consumers may also hold EVs to a higher safety standard than traditional vehicles, due to the absence of gasoline in EVs.  However, not all are expressing distrust or skepticism around the Tesla fires.  Panasonic, manufacturer of battery cells for the Tesla Model S, has recently come to the aid of the automaker, and the company’s chief financial officer expressed confidence in Tesla and the performance of its batteries.  Panasonic ranked as the fourth best overall lithium ion battery manufacturer in the world in Navigant Research’s Leaderboard Report: Lithium Ion Batteries for Electric Vehicles.

Regardless of the recent media concern over EV safety, one issue remains clear : if your car does go up in flames, having an electric battery under the hood is much safer than a tank of gas, any day of the week.

 

Tesla Looks to Autonomous Vehicles

— September 23, 2013

In August, Tesla announced that its Model S had been awarded the highest safety score ever by the United States’ National Highway Traffic Safety Administration (NHTSA).   The combined record score of 5.4 stars was made possible by the underlying vehicle architecture, which gives Tesla an advantage over other manufacturers who must optimize conventional vehicles.

The biggest advantage is that the Model S does not have a large, rigid body in the front (i.e., the engine), which makes it easier to design the structural members to collapse steadily and absorb the impact energy.  Building the car out of aluminum also helps the crash performance because the aluminum sections have thicker walls than steel-bodied cars, making it easier for the engineers to design collapse modes that absorb more energy.  Locating the battery under the body also improves stability.

While all this passive safety is a good thing, the leading luxury manufacturers are now concentrating on “active safety,” otherwise known as ADAS (advanced driver assistance systems).  Having now made the interior as safe as possible in a crash, the next goal is to reduce the number of crashes.

Changing the Game

The core functionalities of ADAS – adaptive cruise control, lane departure warning, and blind spot detection – are notably absent from the options list of the Tesla Model S.  However, tech savvy owners have already been digging around in the onboard menu system and found references to ADAS features for future use.   And to further support this step, Tesla is currently looking for an engineer to implement “fully automated driving.”

On September 18, CEO Elon Musk said in an interview with the Financial Times that Tesla will have an autonomous car by 2016, but then clarified that it would only hand over 90% of the vehicle control.  That remaining 10%, left in the driver’s hands, is essential to meet current legislation.  And how do you calculate control percentages?

So it appears that Tesla is already thinking ahead to the upcoming race toward autonomous driving.  My recent report, Autonomous Vehicles, indicates that Tesla engineers have about 6 years to perfect the technology if they want to take a leadership position in the market.  It seems that they’ve already taken the first steps by building in an upgrade capability in the first of the Model S vehicles.  Add the necessary sensors and a software upgrade and existing owners will have access to the latest ADAS features.  Traditional OEMs prefer their existing customers to trade their vehicles in to get the latest systems, so maybe this is another example of how Tesla is changing the automotive industry.

 

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