Nissan (s NSANY) has made some bold claims in recent months about the battery pack for its upcoming LEAF electric sedan — namely, that it had broken the $400/kWh mark at a time when other automakers were boasting about lithium-ion batteries edging closer to $500-$700/kWh for future models. However, Tesla Motors (s TSLA) CEO Elon Musk, for one, isn’t worried about getting schooled by Nissan in the battery game.
In a call with shareholders and analysts on Wednesday, Musk slammed Nissan’s battery technology and said Tesla does not believe the Japanese automaker will beat the company on cost-per-kWh.
Asked during Wednesday’s call whether Tesla is seeing competitors, and specifically Nissan, drop their battery costs faster than anticipated, Musk commented that the LEAF battery pack uses a “much more primitive level of technology” compared with the sophistication of even Tesla’s first prototype.
This comes down mainly to the thermal management system, or the technology used to keep the battery within a healthy temperature range. Tesla uses what Musk described as active liquid thermal control, while the LEAF pack uses an air cooling system. As a result, the LEAF pack will have temperatures “all over the place,” causing it to suffer “huge degradation” in cold environments and basically “shut off” in hot environments, claimed Musk. Liquid cooling systems (General Motors’ (s GM) choice for the Volt battery pack) can be more complicated, but also more compact than air cooling systems.
Tesla needs to take some big bites out of the battery costs for the planned Model S sedan, which the company is betting will be its ticket to profitability. According to Musk, battery costs for the $57,400 Model S are on track to be 40 percent less than those for the first version of the $109,000 Roadster, which launched back in 2008 with a belly full of 6,831 battery cells similar to those used in laptops.
In Tesla’s system, liquid coolant is pumped through the pack, which is equipped with sensors that can be monitored by the car’s firmware. The more cells you have in a battery pack, the more difficult it is to manage the power flowing through them, as Motiv Power Systems CEO Jim Castelaz has explained. It’s a “super-linear” relationship, with 200 cells generally being more than twice as difficult to manage as 100 cells.
For Tesla, Musk said battery savings will stem in large part from the shift to a nickel cobalt aluminum cathode (positive electrode) for the Model S, rather than the cobalt cathode for the Roadster. Cobalt is the “most expensive ingredient” in the battery pack, said Musk, and the Model S pack will use only a third of what’s needed for the higher end Roadster. In addition, Musk said that the company’s targeting a 50 percent increase in density at the module level (fitting more lithium-ion cells into each module in the battery pack).
The Model S will still use laptop-sized battery cells (and lots of ’em), engineered for automotive use, Musk said. (Toyota has said it’s particularly interested in evaluating the potential benefits of Tesla’s battery pack design as an alternative to larger cells and fewer of them, through the companies’ work on an electric RAV4 prototype.)
As Nissan gears up to launch its LEAF (with an 8-year, 100,000-mile battery warranty) later this year, however, Tesla still has a long way to go on the Model S project and its road to profitability. Musk said Tesla expects to spend roughly $400 million over the next 2.5 years, out of a total $500 million program for the Model S. The company’s aiming to complete an “Alpha” prototype toward the end of this year, with about 80-90 percent of the model considered “production intent,” and then a “Beta” prototype with small tweaks bringing the car up to 99 percent production intent.
While demonstration units won’t roll into Tesla’s stores until the second half of next year, the company has now collected more than 2,800 reservations for the car, said Musk, up from 2,600 at the end of June. Each of those reservations requires a minimum $5,000 refundable deposit, so these early hand-raisers are likely serious about buying the car. But the reservation figures won’t really say much about demand for the model until next year, the company said, when its sales team will “start to push advance orders.”
Tesla Chief Financial Officer Deepak Ahuja noted during Wednesday’s call that Tesla has increased its margins on the Roadster over the last 12 months, but Lux Research analyst Jacob Grose commented those margins may still be alarmingly slim for a company that aims to eventually produce a $30,000 electric vehicle. “Since Tesla’s only product right now is a $100,000-plus Roadster, which in theory should be a high margin vehicle (it’s not),” Grose said Tesla’s net losses “raise a serious question of whether Tesla has the operational discipline to succeed in its eventual goal of producing an EV in the $30,000 range.”
That said, Tesla’s executives emphasized that the company is in an aggressive expansion phase. Without those expansion efforts, Ahuja said the company could be “right sized” to deliver a net profit based on a gross margin “in the range of 20 percent.” In exchange for “pretty astronomical growth,” said Musk, the company is “giving up” the possibility of a profitable enterprise today.
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