
How Tesla's battery costs impact its gross margins - apsec112
https://dashboards.trefis.com/no-login-required/pNkbHhrb/A-Detailed-Look-At-How-Tesla-s-Battery-Costs-Impact-Its-Gross-Margins?fromforbesandarticle=tsla200113
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zaroth
There’s another dimension to this, which is the the “contribution margin” per
kWh.

As long as Tesla is battery cell constrained (e.g. next 5 years or longer)
every kWh of cells they sell needs to be attached to a certain amount of
profit. This is why Semi is not going to ship in volume for a while.

There’s rumor Tesla will build a cheaper compact car for China and EU. If you
allocate 45kWh of cells to a car which sells for $20k and earns $4k of profit,
versus 75kWh of cells to a car that sells for $50k and $10k of profit, all
else being equal (20% GM) you want to sell more of Option B because the
battery cell is your manufacturing limit and profit per kWh is $133 vs $89.

Or to put it another way, a car that clears $4k for Tesla can only have a
30kWh battery, or else selling that car drives down profit.

Tesla is rumored to be planning on making their own chemistry cells at GF4. I
expect we will see real volume in their next-gen chemistry by the end of 2022
or mid-2023, at which point their annual production run rate will likely be
greater than 1.5m vehicles requiring 100GWh of batteries per year. Currently
they are closer to 35GWh, and IMO scaling the battery production is by far the
hardest part.

They have started using LG Chem cells in China, whereas up until now they were
only sourcing cells from Panasonic. This is because it’s simply not feasible
to produce the needed cells for GF3’s 150k/year run rate at GF1 and ship them
overseas. Although that’s what they did for the initial China production run.

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Robotbeat
I don't think Tesla is fundamentally cell constrained on that timescale. They
can expand cell production a lot faster than that. They have plenty of site
space at Gigafactory 1, so can probably go from decision to expanded cell
production inside of 18 or 24 months (maybe less if they find an empty factory
with suitable utilities). Even faster, they can buy cells from, as you say,
LGChem or others.

Tesla has long bought cells from others for its stationary storage products.
They could pursue a similar strategy for Semi if they wanted (in the near
term). The lower range Semi does not push battery chemistry particularly hard,
so a third party cell is easily feasible there.

So I don't buy that they're cell constrained on such a long timescale. They're
constrained by other things.

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marvin
Will there be an additional 65 GWh of suitable battery cells available from
third-party suppliers globally, at reasonable cost, in such a timeframe?

This seems somewhat doubtful to me, given how strategically important battery
cells are for EVs, and how everyone and his dog has announced that they will
make an EV.

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Robotbeat
Exactly 65GWh? I dunno. But a substantial number, yes.

Announcement of EVs doesn't count for much. The last 5 years have seen lots of
announcements and not a ton of deployment.

Cylindrical cells (except for the longest range or highest performance
vehicles) are nearly commodities. Tesla's early decision to go with
cylindrical cells keeps being validated. It's a major risk reduction to be
able to switch cell producers without redesigning the whole battery pack or
car. Other car companies like Rivian are also using cylindrical cells.

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ggm
When picking gross margins it is not always desirable to pick the highest. It
would be unusual, but not actually illegal or wrong to pick a mix of gross
margins. It depends what your goals are. Does anyone think VW only makes and
sells it's highest gross margin products? Or Heinz or anyone else?

It's an interesting analysis but it doesn't define what tesla will do or why
they do it. It only defines what sets the upper and lower bounds on
expectations of return on investment.

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woodandsteel
VW sells a big mix because it already has built all the factories needed to do
this. Tesla is still expanding rapidly, so makes sense to focus on the most
profitable products for now.

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godelzilla
Well they're not overthrowing Bolivian democracy for the quinoa.

