Tesla has built and deployed the first phase of the Gigafactory in Nevada. The goal of the facility is to bring down the cost of lithium-ion batteries from $190 per kWh in 2016 to $130 per KWh in 2020. To put this into perspective, a 85KWh Tesla S has $16,150 of battery today that will reduce to $11,050 in three to four years - a saving of $5,000.
These numbers show one of the challenges of the electric car business. To give a vehicle the range needed for mass market adoption ( let's say with a 50kWh battery) today you would need to spend $9,500 on the battery before you add the car.
In the US, the 2016 Toyota Camry (the best selling US car) sells at a price starting at $23,070. Thus by the time you add any margin to the battery it effectively consumes half the selling price of the leading mid-sized car. The challenge is to address the perceived range problem (even though many drivers don't cover enough miles per day to make range a valid concern) but keep the car affordable.
The Gigafactory could help overcome this challenge, and Tesla hopes its Model 3 will become the first mainstream mid-market electric car. We will also have to see what the established automotive players have up their sleeves.
My hope is that by 2020 we will start to see a much broader electric car adoption driven by the reduced battery cost and a regulatory and tax framework that encourages adoption.
The Gigafactory is a marvel of modern production technology, “a machine that builds machines,” as Tesla CEO Elon Musk puts it. In addition to being cool, it offers unprecedented economies of scale for lithium-ion battery production, lowering the price from $190 per kWh in April 2016 to an estimated $130 per kWh once complete. The huge scale of the production, coupled with reduction of waste and a vastly reduced supply chain, provide significant savings and ultimately a 30 percent reduction in battery production costs.