Although they are an expensive part of the Tesla car's electric vehicle, they are getting better. GTM Research forecasted that by 2030, lithium ion batteries would be less expensive by 65%. Tesla is leading this trend and will likely keep improving. However, this will require changes in how the car and the technology are used.
For example, the first Model S models had a 60 kWh battery pack, which is not sufficient for a long-range vehicle. The company is trying out a new form factor and battery system for its Model 3. Tesla founder Elon Musk stated that the Model 3 will be moving from Nevada to Reno. This will allow for larger, cheaper manufacturing of commodity batteries.
According to Goldman Sachs', solar panels continue to be priced at a 3% annual decline. This should result in a drop in the cost of Tesla's batteries. They are also expected decrease by 3% annually. The increased production capacity will likely result in a decrease in the cost of a Tesla car. The Model 3 cost $35,000 before incentives. A Model X with an 85 kWh pack of battery packs costs US$17,000 which is roughly twice the Model 3 price.
The Tesla Gigafactory is designed to reduce Tesla battery costs by a quarter. This will be achieved by vertical integration and economies at scale. Although the factory has not yet started production, it was scheduled to begin production in 2016. Tesla announced a partnership to Panasonic, a Japanese manufacturer aftermarket car audio products and speakers. Both companies will be working together to build batteries at Gigafactory.
The Gigafactory is not currently operating at its full capacity and will not start producing batteries for Tesla cars until the fall 2016. Tesla has yet to reveal the exact production plan, though the company's website says that the plant will produce batteries for the Tesla grid and solar power storage units. The 6,500-person expected workforce at the Panasonic and Tesla plants is 6.
Tesla's founder Elon Tesla said that the company plans on selling 500,000 cars per annum. It is an easy number to achieve and will lower the cost of the Model 3, The federal tax credit will end for Tesla after 200,000 cars are sold, but this will only help customers who purchase the car through aggressive subsidies.
California state rebates provide 60 percent coverage on the battery price in addition to a federal tax credit. Solar-powered batteries are eligible for incentives from the state. Federal tax credits equal to 30% of the cost of solar-powered vehicle batteries are available. The cost of the batteries is expected to drop to $125/kWh by 2020.
If Tesla's battery technology continues to improve, the Model S's price could drop to US$17,000; this is a significant decrease from the current price. However, this is still not enough to make the car affordable.