Tesla Motors is leading the way in electric vehicle technology, especially in batteries, and this is a good time to be in Tesla’s position. Goldman Sachs estimates that “electrified vehicles” will be one-quarter of the car sales in the world in the next ten years. The analysts define “electrified vehicles” as those with an electric powertrain, which include not only EVs but also hybrids and fuel cell vehicles.
Tesla is taking one of the first and most important steps in advancing “electrified” vehicle technology, and that’s ramping up battery production.
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Electric vehicles: the wave of the future
Goldman Sachs analysts released Volume 1 of their “Cars 2025: A disruptive new era of the Automotive Age.” In it, they discuss the shift that’s happening within the auto industry, seven “megatrends” they see unfolding and why it’s more urgent than ever that the industry embraces new technologies. Here are the seven megatrends they see as being essential over the next several years in the auto industry. (All charts/ graphs in this article are courtesy Goldman Sachs.)
Unsurprisingly, they believe electric vehicles play a major role in the future of the automotive industry. It’s understandable why many analysts remain bearish on EVs, however, as the Goldman team notes that the penetration rate is far below what Nissan and other automakers were expecting five years ago.
The benefits of EVs
Electric vehicles have a major advantage over those with internal combustion engines. They have a third as many parts as their gas-powered counterparts.
However, this advantage also comes with one big disadvantage, at least for now. Battery costs and durability and lengthy charging times are a huge barrier to adoption. As time goes on though, Tesla and others, possibly even Apple, are going to drive more innovations forward. Battery makers, including MMC and AESC, are reporting that by 2018, lithium-ion batteries will likely have double the energy density of what they do now.
Tesla’s gigafactory opens in 2017
A big part of advancements in battery technology is production capacity, and Tesla aims to fix this issue with its $5 billion gigafactory. The Goldman Sachs team believes the facility will be an important turning point in the next five to ten years. Panasonic is partnering with the EV manufacturer and intends to invest by paying for between 30% and 40% of the production equipment for the facility.
By 2020, Tesla expects the factory’s capacity to be 50 GWh per year, which the Goldman team said is the same capacity as three-and-a-half standard nuclear power plants. The automaker expects to be able to produce half a million Tesla vehicles with 35 GWh. The other 15 GWh is expected to be used for the home and business energy storage systems Tesla unveiled last month.
Battery costs to plunge
Together, Panasonic and Tesla expect to be able to slash battery costs by approximately 30% to 40% after production at the gigafactory is fully ramped. The Goldman Sachs team expects the price per watt-hour for EV batteries to be cut in half within the next ten years.
The Japanese government expects that in the next five years, there will be high demand for EVs with a range of 250 to 300 kilometers and that the price per watt-hour will be about 50 cents. The analysts think these milestones could be reached three years earlier, however, because of how many battery suppliers there are in Japan
Down the road, EVs are expected to become more affordable and hit the mass market, but probably not until the late 2020s using this same roadmap, according to the Goldman Sachs team.
Unfortunately this projection throws cold water on Tesla’s goal to have a mass market “affordable EV out in the next few years. But then again, if Tesla could achieve this milestone before any other automaker, it would have a significant lead over all of its competitors, just as it has now in terms of battery technology and EV range.