Think Tesla Has an Advantage? Think Again

Written by Adam English
Posted January 28, 2020

The whole point of Tesla’s Model 3 was to bring electric cars to the masses.

The Model 3 has been a success so far, but not in that regard. While it is significantly cheaper than the Model S and Model X, it still comes at a steep premium to normal sedans — About $5,000 by most estimates.

Unfortunately for Tesla, it appears that the goal is going to remain elusive for many years to come.

For years now we’ve been hearing about price parity for electric vehicles — that moment when scaled-up sales and cheaper technology and batteries finally puts them at an equal price.

It seems like it has always been just a couple years away, but the goal posts keep moving and the day never comes.

A lot of work has been done, don’t get me wrong. A lithium-ion battery was priced around $1,100 per kilowatt-hour back in 2010.

Today it’s around $150 to $200 per kWh. BloombergNEF expects the price to drop to $100 per kWH by 2023.

That is prompting a new wave of predictions that electric cars will finally cross the finish line and be truly economically viable as a mass market replacement for internal combustion engines.

I don’t buy it though, and apparently neither does the Massachusetts Institute of Technology Energy Initiative.

A report released by the MIT Energy Initiative late last year took a level-headed look at these predictions and found some of them to be wildly unrealistic.

Some of the base assumptions are contradictory to the point where they simply cannot be possible.

The cost of the batteries for an electric vehicle is the only real differentiator between types of vehicles, go figure. It also is a major component of total vehicle cost, accounting for about a third of it.

The MIT report confirmed what everyone in the industry already knows — the cost reductions from improving batteries is quickly slowing down and will hit a wall soon.

There simply won’t be a way to squeeze out more power due to the chemistry involved, unless you want to cause one of the battery fires that have torched Tesla cars in recent years.

Yet the underlying assumption for many of the projections that put price parity within a couple years assume cost reductions will continue.

As Randall Field, executive director of MIT’s Mobility of the Future group, stated in an interview with MIT Technology Review, “If you follow some of these other projections, you basically end up with the cost of batteries being less than the ingredients required to make it. We see that as a flaw.”

Even predictions that put price parity further out in the 2030s have a glaring issue. They assume that material costs are going to remain the same.

This is in spite of a massive growth in lithium-ion battery demand that we’re already seeing in the market, and that is expected to continue for decades to come.

Add in the fact that lithium and many of the metals that go into batteries are abnormally low right now and it flies in the face of the first lessons in Economics 101.

The “fuel” side of the equation cannot be solved in a couple years, and probably not even in a couple decades. For all we know it may never happen.

However, there are alternatives to both internal combustion engines and electric vehicles that can scale up without the source of the energy remaining too high.

The Outsider Club’s Jimmy Mengel has just released his own research on the next generation of fuel cell technology, how it is being rapidly adopted and deployed across a wide variety of vehicles, and how it has the potential to overtake EVs.

Check it out.

Take care,

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Adam English

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Adam's editorial talents and analysis drew the attention of senior editors at Outsider Club, which he joined in mid-2012. While he has acquired years of hands-on experience in the editorial room by working side by side with ex-brokers, options floor traders, and financial advisors, he is acutely aware of the challenges faced by retail investors after starting at the ground floor in the financial publishing field. For more on Adam, check out his editor's page

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