• Christopher Hall

How much does a Tesla battery cost to make? – Investor Questions Answered


Tesla are the flagship Electric Vehicle (EV) powered by Lithium-ion (Li-ion) batteries. Recent years have seen the prices of the raw materials used in Li-ion batteries skyrocket.

This week’s investor question asked how much more it costs to make the Li-ion battery in a Tesla Model S today, compared to when it was released?

Executive Summary

The cost of many raw materials used in the Tesla Model S batteries have roughly doubled from 2015 to 2018.

Background

There is more than one type of Li-ion battery, and for each type there are numerous ways to manufacture a battery using the same chemical principles.

Tesla are the most popular EV on the market. While the exact mixture of raw materials for Tesla’s batteries is unknown, we have used the best resources for our estimates – most are from academic papers published through universities or investment banks estimating Tesla’s costs.

To further complicate the matter, not all raw materials are equal. Much like fruit, you can buy it peeled, chopped and ready to eat; whole and fresh; or frozen. The raw materials have different grades, with higher grade materials requiring less refining so usually sell at higher prices.

How big is the battery?

For our calculations we used the 70kWh battery used in the Model S 70 series of cars.

This battery is 540kg, or 26% of the car’s total weight.

For comparison the:

  • High performance Tesla copper rotor motor weighs 45kg

  • The Model S’s body and chassis (car frame) weighs 190kg

What Type of Battery is used?

Tesla Model S uses a Li-ion battery, namely a nickel cobalt aluminium oxide battery, or ‘NCA’.

If we simplify the chemistry (a lot), and imagine the battery as a very large AA battery in your television’s remote, there are three main parts:

  • The positive end, being the ‘knobby part’ of a AA battery, called a ‘Cathode’

  • The negative end, being the ‘flat part’ of a AA battery, called the ‘Anode’

  • The bit in-between which is filled with a combination of lithium salts

What is the NCA battery made of?

The exact combination of Tesla’s batteries is not known.

While there are many materials used in the casing of the battery, for the purposes of calculating how much more expensive a battery could cost today (January 2018) compared to when the Model S 70 was released (February 2015), we are focussing only on the most volatile raw materials used in the batteries.

Here are the industry averages of NCA battery content - remember these are crude averages as not all materials are equal:

  • Lithium: 63kg

  • Graphite: 54kg

  • Nickel: 66kg

  • Cobalt: 15kg

The raw materials require refining before the manufacturing process to build the car can start. Each step from the raw material to the finished product is part of the ‘value-add’ chain and in turn, increases the cost at each step.

The price is a function of world commodity prices regardless of whether Tesla buy the raw materials directly from the miner, or partly refined from a third party.

Raw material cost 2015 vs 2018

When the Model S 70 was released in February 2015, the total cost of these materials was $1,803.

To buy the same combination of raw materials today would cost is $3,340.

Summary

The price increase of these four raw materials used in the NCA battery of Model S 70 is 85% more than when the car was released.

In answering this investor question, we note that looking at these four raw materials alone, it is possible that the cost of a battery used in any EV, not just Tesla, has doubled in the last three years.

Looking ahead

Undoubtedly the increase in popularity of EVs has partly caused this increase. The commodities have also become harder to access.

Looking forward from this query, we wonder whether the market’s greater concern will be EV companies securing the supply of these raw materials. What effect will the limited supply have on companies like Tesla’s ability to manufacture the batteries and meet their production forecasts?


Arrow Securities Group
 
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