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On Wednesday at Tesla's Investor Day, Elon Musk, the company's CEO, unveiled plans for low production costs that dovetailed with his goal of entering an affordable car market. These strategies were unveiled in a presentation made at that event.
Musk's strategy calls for increasing production to 20 million vehicles annually, which would be 10 times larger than current capacity. This marks an effort to transform Tesla from a futuristic idea into a major player in an increasingly polluting world.
At a presentation to investors, Musk and his team unveiled ambitious plans to reduce production costs. They predicted Tesla could build an electric battery vehicle of $25,000 within three years, cutting its battery pack costs from $156 per kilowatt-hour today to $70 in 2022.
The plan involves drastically increasing battery production capacity within the company, taking advantage of technological economies of scale from enhanced manufacturing methods. It's an ambitious step even for a Silicon Valley titan like Musk.
Though electric vehicles remain pricey, it's essential to remember there are multiple reasons for their cost. Primarily, lithium-ion batteries are typically used in EVs which are becoming more scarce as raw materials become more valuable and hard to obtain. As a result, prices of these EVs tend to go up over time.
In order for battery-electric vehicles to truly compete, their prices must be significantly lower than their internal combustion engine counterparts. That is why many experts anticipate it will take an enormous breakthrough for a BEV to become cheaper than an average sedan.
One way to accomplish this goal is by developing new materials. Tesla recently joined forces with LG Chem to create a lithium-ion battery that is lighter and cheaper than existing models.
Tesla must also reduce the amount of energy it uses to charge batteries, an effort which should result in a 50% decrease from their Model 3 platform, enabling the company to reach its goal of producing 1.8 million electric cars by 2023.
Musk's vision to expand Tesla's mass market reach and foster a sustainable energy future require them to go beyond their current four models, which are all priced towards the higher end of the market. To do this, they need to produce more affordable options than those currently offered.
Musk's next major initiative is to make self-driving cars accessible for everyone. He has promised that supervised FSD will be available in the US by 2023, though this technology still needs further refinement and won't reach mainstream adoption until it has been thoroughly tested.
Musk and his team recently unveiled plans for a new factory in Mexico that will be dedicated to producing Tesla vehicles. This move is essential for increasing production at the company, which already has four factories across America, Europe and China.
Tesla's founder and CEO has been passionate about their mission to make affordable cars. Their Model 3 and Model Y models have become some of the world's best-selling electric vehicles.
Tesla may have reduced production costs by a factor of six, but the company still hasn't quite achieved its goal of creating affordable cars. While it has succeeded in increasing sales, Tesla still trails Japan's Toyota and Korea's Hyundai when it comes to volume sales.
One of the major obstacles to lower electric car costs is battery technology. At present, batteries cost more to produce and store than internal combustion engines do, so Musk has long held that combining innovation and brute force would bring down these costs.
In 2012, Elon Musk unveiled the Model S - one of the first luxury electric vehicles available at an affordable price point. It quickly became one of the top-selling vehicles worldwide and earned numerous accolades such as Time Magazine's Best Invention of the Year and Motor Trend Car of the Year.
Another essential part of the plan was to construct more affordable vehicles, such as a compact SUV and pickup truck. These models are meant to appeal to a different kind of consumer than more premium models like Model S or X.
However, it remains uncertain whether Musk will actually meet his timelines for these vehicles. In the past, he has missed his most critical deadlines.
Autoblog anticipates Musk will discuss his plans for lower-cost vehicles at an upcoming "Investor Day" event, usually held in Texas and featuring several speakers including Musk.
At present, the most affordable Model 3 starts at $35,000 with additional options and specifications bringing it up to $78,000. This puts the electric car about twice as expensive as a BMW M3 and nearly three times what it costed before its launch last year.
Tesla's goal of providing 500,000 electric cars annually requires an expansive production facility - this is where Gigafactories come into play.
A Gigafactory is an expansive facility that manufactures batteries for electric vehicles (EVs). This project is part of Tesla's initiative to transition the world towards renewable energy sources and helps keep EVs affordable for consumers.
Tesla Gigafactory stands out among other factories by designing its production process from scratch to produce battery cells and packs. This makes it more efficient than traditional factories and allows Tesla to make changes quickly without disrupting production.
Once complete, the Tesla Gigafactory will be able to produce 35 gigawatt hours (GWh) of lithium-ion battery cells and 50 GWh of lithium-ion battery packs annually. Furthermore, this facility can produce more lithium-ion batteries than were produced worldwide in 2013 combined.
Elon Musk wanted the Gigafactory to take a different approach to battery production. It emphasizes first principles thinking, asking "why?" instead of simply following traditional processes.
This new method of production allows the company to save money by maintaining control over all aspects of production. Furthermore, it gives them the capacity to adjust their processes quickly and efficiently, so they can meet changing demand for cars more effectively.
Although Gigafactories sound intriguing, they require an enormous amount of money to build and run. Furthermore, finding funding for such an ambitious endeavor can prove challenging.
If the Gigafactory is successful, it could mean big things for Tesla. It could even be the key to making Model 3s and Ys more accessible to customers.
Tesla has had a problem with high production costs since their founding. A potential solution could enable them to offer cars at much cheaper prices, potentially keeping the company profitable and successful.
No matter the outcome of the Gigafactory project, its effects will be felt across both the auto industry and beyond. Not only will it reduce carbon pollution produced, but its cheaper batteries could potentially drive down electric vehicle (EV) costs as well.
Tesla's Model Y five-seater SUV, which previously didn't qualify for federal rebates, will now be priced at $52,990 as part of their price reduction initiative. But even at this lower cost, Musk noted that producing the Model Y still costs half as much as producing Tesla's flagship Model 3.
Tesla's Fremont factory will construct the Model S electric vehicle, featuring a unique body style designed by the same team behind the Model 3 (and Y). Expect similar acceleration from 0-60 as with the Model 3, plus standard features like an autopilot system and 300 miles of electric range.
According to The Wall Street Journal, Tesla Model Y production costs will be cut in half through advances in battery technology and modern manufacturing techniques. This translates to a gross profit margin of 40% for Tesla, according to analyst James Munro from Morgan Stanley.
Tesla can further reduce production costs by using more cost-effective materials. Musk noted in his presentation that lithium ion battery prices have fallen by 50% in three years, leading to a much reduced overall vehicle cost.
He further highlighted how battery cells and pack designs are evolving, leading to dramatic cost reductions in the future. This is largely due to a new dry-coat process for electrodes which can reduce costs in battery cells by nearly 8%.
While this might be a positive step towards Tesla's goal of 20 million electric cars per year, it doesn't guarantee that we will see an affordable $25,000 Model Y any time soon. On the contrary, it will serve those who desire smaller and more manageable electric cars with lower price tags an excellent option.
At present, the most affordable Model Y is priced at $58,490 in the United States and starts at $48,490 in China - a significant price drop that should encourage more sales and deliveries for Tesla Motors.
Although it may be tempting to assume this marks the start of a price war, it's essential to remember there are other costs involved in producing high-quality electric vehicles such as raw materials and labor needed for production. Furthermore, competition is likely to intensify in the near future as more and more established car companies enter the electric vehicle market.