100 kWh Tesla Model 3? Examining the Business Case. Plus Spain EV Incentives, Tesla Energy in the UK.
100 kWh Model 3
We learned late last year from Twitter user @greentheonly that Tesla’s Model 3 firmware had contained references to a 100 kWh battery pack since at least March of 2019. Speculation was interesting at the time, but no Model 3 vehicles had been found to include that size battery pack. That may have changed today, with Twitter user @zeus7f1 sharing a screenshot of a Tesla Model 3 display in Factory Mode. While a screenshot like this could be easily faked, the pack size is listed as 100 kWh here.
@greentheonly was tagged in the original tweet from @zeus7f1 and took the opportunity to retweet and disclose that he was aware of other Model 3 vehicles with 100 kWh packs.
“First publicly revealed 100kWh model3. I know more than this one exist outside of Tesla test labs.” - @greentheonly
“I know they exist. Was hoping to get direct access to one soon, but it looks like you beat me to it ;)” - @greentheonly
Musk has commented on a 100 kWh Model 3 in the past, saying such a large pack would not fit the Model 3’s shorter wheelbase. Battery energy density improves over time, though, so comments from 2017 are not necessarily applicable to today’s technology.
While this is still very speculative, a 100 kWh pack does seem like it may be possible. The Model 3’s 75 kWh pack has not increased in size since the launch in mid-2017. A 100 kWh pack would contain ~33% more energy than the Model 3’s original battery. If Tesla released a 100 kWh variant next year, that would represent a 7.5% compound annual growth rate (CAGR) in capacity from 2017 to 2021. The largest Model S battery increased from 85 kWh at launch in 2012 to 100 kWh in 2016, a 4.2% CAGR. It would be reasonable to expect the rate of improvement to slightly decline over time, but with Tesla’s battery day looming, all bets are off.
If Tesla does end up offering a 100 kWh Model 3 at some point, it’s worth examining how they might implement it in their lineup. Would it be added as a new, higher-priced trim, or replace today’s Long Range Model 3 vehicles?
Assuming Tesla is able to meet the cost target of $100/kWh by the time of hypothetical production, the additional capacity would cost an incremental $2,500 in Tesla’s cost of good sold. If we assume Tesla’s gross margin on the Long Range Model 3 is around 25%, the added cost would lower margin to around 20% if no other cost or price changes were made. That sort of hit is small enough to be offset in other places. For example of a similar move, Tesla just decreased Model 3 prices by $2,000 in the United States, which would have close to the same impact on margin.
Some margin offsets to consider are Full Self-Driving (FSD), Model Y, and Giga Shanghai margin mix impacts. As Tesla advances the FSD feature set, Tesla can charge more or increase the take-rate on the FSD option, adding incremental margin. As Model Y ramps, it should also become margin accretive. Tesla has said the Model Y will have similar cost of goods sold to the Model 3, but at a higher price, and thus, higher margin. Giga Shanghai margins have improved rapidly and will also benefit from Model Y production beginning locally in 2021.
These factors all give Tesla the margin flexibility to offer lower prices in select areas of their product line, and one such area could be a 100 kWh pack Model 3. It’s not unreasonable to consider Tesla slotting such a vehicle in at the current $47,000 price point of the Long Range Dual Motor Model 3. Such a move would make it increasingly difficult for anyone to compete with Tesla, which seems to be Tesla’s modus operandi.
Tesla Approved to Generate & Supply Electricity in the UK
On Friday, Tesla was granted approval to generate and supply electricity in Great Britain or territorial seas adjacent to Great Britain. This would be another step towards allowing the operation of a Virtual Power Plant (VPP) in the UK to provide distributed power when and where it’s most needed. Tesla has had a VPP pilot project going on in Australia for about a year, and so far, the project is reportedly going well.
Spain Automotive Stimulus Package
Spain has announced a new €3.75B ($4.25B) stimulus package for the automotive industry. ~70% of the package focuses on the “value chain” which means it might not immediately translate to lower prices for the consumer at point of sale. €2.6B has been allocated for low-cost loans and financial guarantees, and about €0.5B for research and development grants and worker training.
Roughly €250M has been reserved for a cash-for-clunkers-esque program to incentivize Spaniards to trade in vehicles 20+ years old. Euractive.com shared more information on the incentive structure.
"According to the government’s plan, vehicles powered by electric battery or hydrogen could qualify for a €4,000 subsidy, while cars that come in under 120g of CO2 per kilometre will be eligible for up to €1,000." - Euractive.com
In some cases, prospective Tesla customers might be eligible for these incentives depending on possible price caps.
Coronavirus Not Spreading at Fremont Factory
The SF Chronicle shared an update on the coronavirus situation at Tesla’s Fremont facilities.
“Tesla said there have been no workplace transmissions of COVID-19 at its Fremont facilities since it restarted production lines last month after county health officials confirmed cases of the coronavirus at the plant.” - SF Chronicle
With Tesla employing around 10,000 workers in the Fremont area, a small number of cases is not surprising, statistically speaking. What is most important is ensuring these cases are not spreading, which Tesla has now reportedly confirmed.