Tesla Motors Inc (NASDAQ:TSLA)’s former Chief Engineer Robert Feldmaier, who worked on the Model S, says that electric vehicle demand is largely driven by regulations rather than consumers. During a conference call with UBS analysts Colin Langan and Philippe Houchois, Feldmaier said he wouldn’t be surprised if Model S demand in the U.S. slows after initial adoption. Offering a cautious outlook on sales volume, he said that Roadster demand too fell after early adoption.

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Fuel cells pose little threat to Tesla

Notably, Barclays analyst Brian A. Johnson has previously stated that the Model S demand may already be slowing in the United States. Feldmaier said about 30% of vehicles will need some kind of electrification in the long-run based on the current corporate average fuel economy (CAFE) standards. This penetration level is in line with the EU targets of 95gm of carbon emission per kilometer. However, the CAFE rules will be re-assessed in 2017, which would have a significant impact on the demand outlook.

Anyway, Robert told UBS analysts that the current 4%-5% per year reduction in battery costs is sustainable, and the $200/kWh is achievable. He believes Tesla should be able to launch its mass market Gen III car at the starting price of about $35,000. That’s almost 50% less than the price of Model S sedan. Tesla will have to use smaller battery packs, which would reduce range, to bring down the cost.

Tesla’s mass market car may have a different battery chemistry

Battery chemistry is still evolving. So, it may change by the time Gen III car hits the roads. The initial selection of lithium-ion battery was mainly due to availability. Lithium-air, lithium-sulfur and solid state batteries’ characteristics resemble that of lithium-ion. Any of them could win out. However, Robert Feldmaier doesn’t see fuel cell as a big challenge due to their high infrastructure costs. A hydrogen station would easily cost more than $1 million, compared to just a few thousand dollars for electric vehicle charging stations.

Tesla Inc (NASDAQ:TSLA) has limited expertise in battery component technology. So, the company is likely to work with partners for its Gigafactory.

TeslaTesla Inc (NASDAQ:TSLA) shares jumped 0.90% to $231.50 in early trading session Thursday.