Tesla lays out path to an electric car cheap enough for most people

At its heart, the plan is to vertically integrate a large portion of Tesla’s battery production, “from mining the ore to the complete battery pack,” as Musk put it. That control will allow for design and technology innovations that Musk says will dramatically slash costs for Tesla’s cars. Tesla currently works with partners like LG and Panasonic to produce batteries, and it apparently won’t end those relationships anytime soon. But it will dramatically expand its own battery production capacity, and, executives said, make those batteries for less than its partners do today.

Based on its various innovations, Tesla projects it can reduce the cost of its batteries by more than half within about three years (though Musk and Baglino didn’t reveal much about Tesla’s current production costs). The result, if Tesla’s projections pan out, could fundamentally reshape the economics of car buying sooner than you think.

Here are the three pillars of that plan.

Better batteries

Tesla unveiled a number of innovations to battery assembly and chemistry at the event on Tuesday, some of them already widely expected. Perhaps most significant, a new ‘tabless’ battery construction method reduces battery heat by shortening the distance power travels during charging and discharging. That in turn allows for much larger battery cells – in fact, Tesla introduced an entirely new design called a 4680 cell, and said that larger cells alone increased vehicle range by 16%.

The event also offered some surprises, including one that highlighted the depth of Tesla’s rethinking of the entire battery-making process. The company has developed what Musk and Baglino said is an entirely novel, cheaper way to mine its own lithium – and has bought land in Nevada to put it into practice.

Faster factories

Musk stressed multiple times that developing new technologies is much easier than producing them at scale. The presentation featured new details about Tesla’s already-running pilot battery factory in Fremont, Calif., where the company says it has figured out how to produce batteries seven times faster than the current Gigafactory in Reno.

The key, according to Baglino, is to keep the production line moving constantly, like in bottling plants. Another major contributor to efficiency is a so-called “dry electrode” technique that cuts production space and costs by 90% from a current “wet” method that requires huge drying ovens. In all, Tesla says that within a year, its small pilot facility in Fremont will ramp up to producing 100 Gigawatt-hours of batteries annually, 2/3rds of the roughly 150 GwH made per year by the giant Nevada Gigafactory using current techniques.

The production innovations don’t stop at the battery, though. One of the more surprising and radical reveals of the night was the idea of a “structural battery.” It’s just what it sounds like – a battery built into the body of a car in a way that allows it to dampen stresses to the car’s frame. Letting batteries do double duty would reduce the weight of the car and the number of parts that go into it.

This exemplifies the key element of Tesla’s broader strategy: when you build every component yourself, including the factory, you can make sure everything works together at maximum efficiency.

Cheaper cars

All that efficiency is pointed, Musk explained, towards the same big goal Tesla has pursued since the beginning: producing electric vehicles cheap enough to make gas-burning cars obsolete and, maybe, save the planet.

With the cost reductions announced at Battery Day, Tesla says it has a clear path to producing a fully-electric vehicle that costs about $25,000. Musk said that Tesla will be able to start making that car within about three years.

That could mark a sea change in car buying, because $25,000 is also the U.S. starting price for two extremely popular gas-burning cars: the Honda Accord and Toyota Camry. But battery-powered cars are generally less expensive to fuel and maintain, meaning buying an entry-level Tesla could become cheaper overall, making EVs attractive to many more people.

Of course, Tesla’s tendency to miss aggressive timelines is by now taken for granted: the company has fallen short on projections about the Model 3, the Tesla Semi, and its self-driving technology.

Musk acknowledged that not all of the kinks have been worked out of the planned battery improvements. And Tesla isn’t alone at the front of the pack. Alyssa Altman, an analyst with Publicis Sapient, saw Tesla’s announcement as an attempt to “get out ahead of” a similar announcement expected from General Motors, whose Ultium battery has also been touted for its lower cost, though with fewer specifics so far.

So it remains to be seen whether Musk can come out ahead. Investors, for their part, didn’t seem blown away: Tesla stock was down nearly 7% in after-hours trading, following the event.

That maybe because investors were hoping for announcements of major new products in the near term, but Tesla limited those to two relative footnotes. The new “Plaid” Model S sedan sports package, that goes from 0-60 in under two seconds, will be available in late 2021. Musk also said that the test version of Full Self Driving software, which would let most Teslas drive themselves without human input, will be released in “about a month.” But the technology has been supposedly imminent for years, so we’ll have to wait and see about that, too.