Tesla has achieved its goal of launching a $35,000 electric vehicle, but its prices could still go even lower. The Model 3, the firm’s cheapest-ever car, is part of a plan outlined in 2016 to reach more consumers and help transition the world to sustainable energy. While the ultra-cheap iteration launched last month opens electric cars to a mass market price point, CEO Elon Musk has suggested in the past that the company could go even lower.
“For us to get to a $25,000 car, that’s something we could do but it’s probably, if we work really hard, maybe we could do that in three years, four years,” Musk told YouTuber Marques “MKBHD” Brownlee in August 2018. Brownlee noted that most consumers trade in a Toyota Prius to purchase a Tesla, but with a price tag near the $20,000 mark for the 2019 model, there’s still a pretty wide gap between the two companies’ vehicles.
Beyond the range — the base-level Model 3 only drives for 220 miles per charge, compared to 310 miles for the higher-end versions — Tesla had to make a number of cutbacks to even reach $35,000 in the first place. It has cheaper seats, manual adjustment, basic audio, no garage door opener, and no smartphone holder. But Musk is clearly passionate about not only building a successful car company, but truly moving the needle away from fossil fuels, which he has described in the past as the “dumbest experiment in human history.”
Could the mass market Model 3 get even cheaper? Here's what it would take.
"“If anyone can do it, it will be Tesla."
The main issue with reaching that $25,000 price point will be the battery cost, but technology is moving fast. A 60 kilowatt-hour battery, similar to the one currently found in the $40,000 mid-range Tesla Model 3, would have cost around $40,000 in 2013. A 100 kilowatt-hour battery, like the one currently found in the $79,000 Tesla Model S, would have cost around $18,000 in 2018. Shiv Patel, a research analyst with ABI Research, tells Inverse that a $25,000 car would likely require a $5,000 battery, “which may be overly ambitious over a three-to-four year period.”
“However, I do think that if anyone can do it, it will be Tesla,” Patel says. “Tesla is a world leader in battery technology meaning the cost of its battery as a cost per [kilowatt-hour] is among the lowest in the industry and it now is only one of a few companies that has significant scale on its battery production. Furthermore, Tesla also operates a unique supply chain compared to the rest of the automotive industry, where large parts of production are in-house, thereby reducing potential production costs.”
Tesla's planned finished Gigafactory, which produces batteries for the firm.
The key figure that experts are looking at is the price per kilowatt-hour, and it’s believed that Tesla leads the way. The company stated in early 2016 that it had already reached under $190 per kilowatt-hour at the pack level, which means a 50 kilowatt-hour battery would cost $9,500. It stated its long-term plan is to reach $100 by 2020, which would bring that 50 kilowatt-hour battery down to the magic $5,000. Sam Jaffe, an analyst with Cairn Energy Research Advisors, claimed in December 2018 that Tesla has likely reached $116. Other electric car makers, Jaffe stated, are likely around $146. That places Tesla in a strong position to reach even lower prices.
“I wouldn’t expect it from Tesla for at least five years,” Sam Abuelsamid, senior analyst for Navigant Research, tells Inverse. “However, I do expect other manufacturers to have offerings in that price range sooner including Volkswagen which has promised that its upcoming ID hatchback (launching later this year) will be price comparably to the Golf. However, VW will likely be taking a loss on that car for several years, but they can afford to subsidize it with other more profitable models.”
Musk deflected questions about battery prices in a January earnings call, describing it as a “highly proprietary number.” However, Musk went on to add that “we do think we have the best costs in the world.” Tesla has also made some interesting moves in underlying technology, acquiring Maxwell Technologies for $218 million last month, a firm that claims it can make denser batteries than ever.
The company may be focused on building 500,000 cars in 2019, but it could pale in comparison to the demand spurred by a $25,000 car. It’s all about the big battery under the hood.
