Although EV battery are a very expensive component of the Tesla cars, they are on the rise. GTM Research has predicted that the price of a lithium-ion battery will fall by 65% by 2030. Tesla is a leader in this field and will likely continue to make significant improvements. However, these changes will require significant changes to how the car is built and how technology is used.
A 60 kWh pack was included in the Model S first models, but this is too small for a long-range vehicle. The company is currently testing new batteries and a different form factor for Model 3. Tesla founder Elon Musk announced that Model 3 production will shift from Nevada to Reno. There, it will use bigger, commodity-grade battery cells that are easier to manufacture.
According to Goldman Sachs solar panel prices continue to fall by 3% per year. This should result in a drop in the cost of Tesla's batteries. They are also expected decrease by 3% annually. Due to the increased production capacity, it's likely that Tesla cars will be more affordable. The Model 3 is currently priced at $35,000, before any incentives. A Model X equipped with an 85 kWh Battery Pack costs US$17,000. This is approximately twice the Model 3 cost.
The Tesla Gigafactory will reduce Tesla battery prices by a third. This will be possible through vertical integration and economies-of-scale. The factory has not started production yet, but it was slated to start 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 hasn't yet stated the specifics of the plant's production, but it states on its website that it will produce solar power storage unit batteries and the Tesla grid. It is anticipated that 6,500 people will work at the Tesla and Panasonic plants.
Tesla founder Elon Musk claims that the company will sell 500,000 cars annually. This is a relatively easy goal to reach and will reduce the price of the Model 3. Tesla will stop receiving the federal tax credits after 200,000 cars have been sold. However this will not affect customers who bought the car with aggressive subsidies.
California's state rebates, in addition to the federal tax credit cover 60% of the battery's price. Incentives are also available to solar-powered battery owners. Federal tax credits up to 30% on solar-powered batteries are available. The battery cost is expected to fall to $125/kWh by 2020.
Assuming Tesla's batteries improve, the Model S may drop in price to US$17,000, a significant drop from the current price. However, this is still far from being affordable.