Lux Research: Tesla Gigafactory To Cut EV Cost By $2,800, Create Massive Overcapacity As Tesla Misses 500,000 Unit Sales Target


Giga Factory Graphic

Giga Factory Graphic

Will the Tesla battery gigafactory be a true game-changer for electric vehicles?  Or is it just lots of hype over something that will have little actual impact?

The analysts at Lux Research are on the anti-Tesla side of the fence, as you’ll witness immediately in this Lux Research press release that we’ve produced below in its entirety:

Tesla Motors’ Gigafactory Will See More Than 50% Overcapacity in its Li-ion Production

The 35 GWh lithium-ion cell production facility, in partnership with Panasonic, will cut battery cost in a lower-cost electric vehicle by only $2,800, and create overcapacity as Tesla likely misses its target of selling 500,000 electric cars in 2020, Lux Research says.

BOSTON, MA – September 3, 2014 – Tesla Motors’ plan to build a new 35 GWh lithium-ion cell production facility – dubbed the Gigafactory – for electric vehicles that will bring about only a modest reduction in battery costs, and create significant overcapacity, given likely sales of less than half the targeted 500,000, according to Lux Research.

Tesla and its partner, Panasonic, will contribute about 45% and 35%, respectively, of the initial $4 billion required to build the Gigafactory, proposed to go on-stream in 2017. An analysis by Lux Research projects sales of only 240,000 cars in 2020, leading to razor-thin margins to Panasonic and 57% overcapacity.

“The Gigafactory will only reduce the Tesla Model 3’s cost by $2,800, not enough to sway the success of the planned lower-cost EV,” said Cosmin Laslau, Lux Research Analyst and the lead author of the report titled, “The Tesla-Panasonic Battery Gigafactory: Analysis of Li-ion Cost Trends, EV Price Reduction, and Capacity Utilization.

Tesla's "Gigafactory" Timeline

Tesla’s “Gigafactory” Timeline

“Besides, Lux’s analysis reveals significant overcapacity because Tesla will miss its ambitious target of half a million,” he added.

Lux Research evaluated Tesla Motors’ Gigafactory plan and its consequences for the EV industry. Among their findings:

Cost-cutting is the name of the game, but the Gigafactory does not do enough. Battery prices need to fall dramatically if plug-in cars hope to break beyond their current niche. The OEMs backing the U.S. Advanced Battery Consortium are targeting $125/kWh by 2020 – more than four times lower than $520/kWh, the price Ford paid for its Focus EV battery packs. Currently, Tesla has the lowest cost – about $274/kWh, according to Lux Research analysis. Tesla founder Elon Musk aims to cut cost by 30%, on the strength of scale, location and technology, lowering the price to $196/kWh with the Gigafactory.
Panasonic faces risks. The Gigafactory might seem like a great win for Panasonic, ahead of rivals such as Samsung SDI, LG Chem, and NEC. But in reality the Japanese company faces high risks. In the optimistic scenario of Tesla attaining its targeted half a million EVs, Panasonic could rake in more than $15 billion between 2017 and 2020. But at the more likely 240,000 EVs, as estimated by Lux Research, Panasonic would take in only $7 billion on its likely investment of $1.4 billion, with questionable margins.

Gigafactory will lead to huge overcapacity. The Gigafactory, proposed to be built at a cost of $5 billion, is designed to make 35 GWh Li-ion cells for half a million EVs. But in the likely event of much lower sales of 240,000, overcapacity will be to the extent of 20 GWh. This 57% overcapacity is unlikely to be filled either by rival carmakers or Tesla’s own plans to sell some stationary battery packs to developers like SolarCity for residential photovoltaic integration and other uses.

The report, titled “The Tesla-Panasonic Battery Gigafactory: Analysis of Li-ion Cost Trends, EV Price Reduction, and Capacity Utilization,” is part of the Lux Research Energy Storage Intelligence service.

About Lux Research

Lux Research provides strategic advice and ongoing intelligence for emerging technologies. Leaders in business, finance and government rely on us to help them make informed strategic decisions. Through our unique research approach focused on primary research and our extensive global network, we deliver insight, connections and competitive advantage to our clients. Visit for more information.

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65 Comments on "Lux Research: Tesla Gigafactory To Cut EV Cost By $2,800, Create Massive Overcapacity As Tesla Misses 500,000 Unit Sales Target"

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Good analysis. Agree fully.

It takes some balls to flat out say that Elon is building something useless, good luck with those predictions, you’ll need it. In my opinion 100K units of Model S and X cars and 400K units Model 3 sedan and compact SUV is just a beginning, demand will be much stronger, the issue Tesla will have is not enought SC’s and not lack of demand.

Tesla seems to be on track with their Supercharger network. They will have the entire US blanketed by the end of 2015. The gigafactory and Model 3 will begin production around 2017. That give Tesla two more years of Supercharger build out. That is a whole lot of Superchargers. Then they will have the time during the year long production ramp up of Model 3. I doubt there will be a lack of Superchargers for customer needs.

Currently they sell less than one tenth of what they plan to sell in 2020, so pretty soon there will have to be thousands not hundereds of superchargers installed. People don’t want to wait for hours for their turn, they want to stop and go…

If the car sales are there then I am certain Supercharger need will be met. Besides, Superchargers are still not an everyday need. For the most part, on any given day, less than 5% of Supercharger capacity is being used. Maybe less, I would guess. I don’t think this is the problem that you think it is. That is as long as Tesla continues to develop new Superchargers at their current pace.

Of course… but building 200 super chargers each per year in USA/Canada, Europe, China and the rest of the world is no problem.

At the moment a much bigger problem is rather not enough sales to validate fully covering networks, so a lot of sales will be a comfortable problem for Tesla.

And since they always have real time tracking of all their super chargers they will know well ahead when they need to install new chargers/more stalls to eliminate eventual ques for 95% of the time.

So, what you’re saying is that Tesla will be in the awful position of too many customers and not enough infrastructure to meet demand?

While I know exactly what that position is like having worked at ISPs since 1995, there are worse problems for a company besides “too many customers”.

And if most of those customers are paying the extra cash to use the superchargers, I don’t even see that as a problem. It might mean that Tesla might have to borrow a little bit of money just to get the infrastructure in place faster, but I don’t think anyone will turn down *that* loan.

“See-Through” really cracks me up. ROFLOL.

We will see what really happens.


Gimme a Teeee — T!
Gimme a Rrrrr — R!
Gimme a Ooooo — O!

if Ever there was a classic comment by ST, this was it..
agreed, ROFL, I’ve always loved clowns.. even the Stephen King variety..
It’d be good fun if members could nominate an avatar for a well-loved anal yst..

Dr. Kenneth Noisewater

Hmm.. Billionaire Elon Musk, or analysts and commenters who haven’t done shit, who to believe?

I bet on Elon.


“Blah blah blah” says Lux. On this topic do I trust the opinion of Lux? Or Musk? Ha! Good one. Obviously Musk.

And the specifics of the article belie some degree of Lux-cluelessness. “huge overcapacity” — no no. If there is excess capacity, there are plenty of good profitable non-EV uses for extra battery-production capacity.

Yes. I believe Tesla/Panasonic plan to add capacity incrementally. So the plant shell itself is large but all the equipment gets added as req’d…like the Fremont factory.

Good point about there being other uses for the cells. They’re just standard cells so they can be used in other applications. I suspect one thought is for storage for houses equipped with solar.

Can’t agree that it’s a good idea to rely on Musk. The man is fantastic at PR but basically he’s a walking talking Fluff Machine. Definitely a contest with Sergio Marchionne as to who can get away with the most absurd sales predictions.

Dr. Kenneth Noisewater

Seems to me Model S has been exceeding production expectations pretty much every quarter, and they can sell just about every one they build?

I put my faith in Elon Hardcheese…

They could be different chemistry’s because the cycle life requirements are different

I don’t think lux is so far off. Tesla may “only” grow from 35,000 this year to 240,000 in 2020. That still would make tesla a hugely sucessful company. It may add $3000 to the price of a model 3 in 2020 which would help account for the lower sales figures.

This isn’t much of a risk to tesla. It is a risk to Panasonic. Tesla can set the price of the car to maximize profits no matter what the costs, but panasonic is locked into the deal. Panasonic though could be a big winner, this tesla partnership is one of the best things going for them if tesla hits close to their numbers.

Indeed. Probably explains why Elon is chairman at Solar City. They’re working on Tesla batteries for solar installs. Definitely a great non-auto application.

Do they really think they’ll just build a factory and it instantly pumps out batteries for 500,000 cars?

No, these things are done in a phased manner. They are going to build capacity as needed.

Exactly. Panasonic has looked VERY closely into their risks in the joint venture. For Lux to presume that they have not, is a sign of true cluelessness and hubris.

Lux Research also predicted that Santa Claus will get a flat tire on his sled and fail the delivery of over half of the presents this Christmas… 😉

Have they ever heard of just-in-time manufacturing? If there is one thing to like about Toyota (and to be fair Ford) is figuring out how to make a lot of things efficiently.

Hmm…Let’s see. If Tesla’s packs cost $274/kwh and the factory brings it down to $196/kwh that is a savings of $78/kwh for the Model 3’s battery. If they say Tesla will only save $2,800/car because of the battery, does that mean they assume the battery to be 36kwh?
$2800/$78 = 35.8

That will be just over 100 miles of range. I don’t think so.

Also, it seems they are assuming a fixed $274/kwh for Tesla from now until the factory is built. Did they not account for the reduction in price that will happen before that time? Doesn’t sound like it.

Also, do they assume that all 500,000 cars will be sold only in the USA? Not thinking that it will be sold all around the world like the S and X is and will be? Doubtful as well.

That’s the problem with these sorts of “research,” if fudge a number here or there, or ignore a variable then the whole thing goes out the window. This is just educated guesswork. I can come up with my own conclusions, just as they did, and get numbers that show that Tesla will not be able to meet worldwide demand. Considering I’ve been watching the company for years and have a decent knowledge of batteries and battery cost my conclusion would be almost as valid as theirs.

Show me, don’t tell me. Let’s see what progresses and in 2016 we will all be able to draw much better conclusions about how well Tesla will be doing with the Model III and the gigafactory.

I also appreciate the risk in making such a huge increase in batteries, however, keep in mind that the chinese market will swallow a huge amount (probably the majority) of 85 kwh tesla ‘s’ ‘s, and with it a LOT of batteries, and its prudent to have capacity for the expected huge increase in sales there.

Of course, if they do start to make too many batteries, I wouldn’t mind if they came out with a 90 kwh Roadster Replacement battery (400 miles) sooner rather than later.

Teslas, the ‘grid hating’ superchargers not withstanding, substantially charge from the power grid overnight, so that they are a very grid ‘ friendly ‘ load the majority of the time, something that does power utilities a favor as it helps eliminate the annoyance of too much base load power and not enough customers.

I suppose you also agreed that we should continue drilling for oil and burning fossilized trees until we are all mandated to wear respirators? Enlightened chap, you are.

I don’t even think it’s giga-factory economies, as much as it is how much longer Tesla gets to play in its own sand-box.

Silly, to presume 34gwh of capacity has to be built out, over-capacity be dammed.

I’m going to disagree with Lux here. Plant capacity can easily be managed by adjusitng the number of shifts worked and will only be scaled up when car production demands it. Now, if Musk’s planned cost reductions assumes a plant operating at capacity, then Tesla might have a problem.

If you assume that their pack cost of $196/kWh is correct, then a lot of their assumptions make sense.

The issue I take with this report is that figure is wrong. By a lot.

I expect an initial EV pack level price of $170, and a grid storage pack price of $150/kWh (less cooling due to max demand of 15kW, rather than 50-125kW). In places like California with high marginal utility rates (e.g. after a certain threshold its 15, 20, 30c/kWh) batteries make a lot of sense to stay out of those tiers.

Hey, a truthful analyst! Imagine that. Seriously, there has been a lot of hot air floated about regaring these topics. When Inside EVs shows sales numbers and offers real data to track consumer acceptance trends and review what may be a future trend evolving in the EV space – use those numbers. When blogs like ev-sales blogspot tracks worldwide sales and gives really good information – use those numbers.

I personally don’t believe Tesla will sell more than maybe 33 thousand this year. Not the 35 thousand that they claimed earlier in the year. Take 30-35% more for next year and you get to about 45K to 50K because of the newness of Model X (only 19K reservations right now, adding 44 per day)…

The only way for T to hit 500K in 2020 is to find a very strong governmental incentive program and to hit all targets and surpass. Let’s get through 2014 before claiming victory in 2020. Lux is one analyst who is actually using numbers and not fluff like the wall street guys.

The high stock valuation and huge sales predictions are not due to anybody realistically thinking the world will buy an endless supply of $100k luxury cars. It is due to anticipation of the Model 3. There are a LOT of poeple lining up to buy that, and I’ll be one of them. I have no numbers to back that statement up, and when you really read the article, neither does he. He simply waves his hand and proclaims Tesla will fail.

> only 19K reservations right now

Only? Only!? You’re kidding, right?

What other manufacturer has 19,000 paid (as in $5,000 paid) reservations for a car that will not be produced for another year, at soonest?

The Model 3 will be one of the most successful new car introductions of all time. I don’t have any doubt they will sell all 500,000.

Almost everyone I talk to who is familiar with Tesla and does not already own a Model is waiting for the Model 3.

Im waiting for the 3

Elio Motors, and they don’t even have factory tooling yet.

You said “all 500,000” – no, the expectation here is 500,000 total vehicles per year, or about 400,000 M3 per year. Every year – for a long time. A cheap ICE vehicle, like the Chevy Cruze, under $20K, has a hard time getting over 300,000 per year. A $40K or more Model 3 is meant for certain circles – those choosing BMW 3-class, Audi A4/S4 and so on. That is a much smaller market than some of the lower-priced vehicles.

It will be successful – maybe twice to three times the take-rate of the MS. But I just don’t see the market for the numbers that everyone is throwing about. 200K a year, sure, possibly, with 300 sales locations and 250 service centers or more nationally and 1000 superchargers to use for free.

And, don’t forget. The Model-3 is supposed to be a lower-margin car. Not 25% GM like the MS which generates 25% of its ASP as GM. You need to consider a 15% GM on a $40K which demands the same labor to build and deploy as a $100K ASP car. Does the model scale and provide profit which makes the company sustainable? Will it be bonds forever like Ford?

Dr. Kenneth Noisewater

40k * .15 = 6k
100k * .25 = 25k

Selling 4x Model IIIs would result in roughly the same profit, so if Tesla’s goal really is electrification of vehicles, then the former is worth doing. Plus, presumably scaling up will allow some improvements in component costs, process efficiencies, and investments in new tech that wouldn’t be justifiable for lower-volume production. All those things could contribute into across-the-board margin improvements and/or price reduction.

Don’t forget that it will also be sold around the world. Not just in the United States.

correction accepted: should have been “will sell all 500,000 per year”

> It will be successful – maybe twice to three times the take-rate of the MS.

Interesting perspective. You think they will sell only 2x to 3x the number of $35k BMW 3 Series competitor as $100k BMW 7 Series competitor?

How many people have you actually gone out and talked to?

I don’t think Lux understands that the Gigafactory is just as much about home and commercial storage as it is about cars. I’d buy a home system today if it were widely available. All that solar and wind capacity needs battery backup, and Solar City is ready on the solar end to run with this.

Why haven’t you bought a home system today? Off-grid and hybrid solar storage have been around for decades. What makes Tesla anything different from the various vendors who already supply such systems? The problem is the per-kWh price is enormous. It still is with the SCTY solution but you lease it over 20 years and the “price feels right”. Look over pricing before you commit to any “battery storage” solution you think you need at home. For power-outages, consider a generator. For $3-4K you can have your house powered during a blackout. For $15K you can have a 10kWh battery standby system good for a few hours of power. You also still need a generator to keep standby-system’s batteries conditioned.

The parameters for a successful home battery storage system are 1,000+ cycles, prices at $120/kWh or below, and a price differential between daytime peaking power, evening peak/mid power, and night time cheap power.

No, we really don’t need huge amounts of storage for solar & wind. That is just something that people who don’t know what they talking about often bring up. Sure it would be an issue if our grid was like 60% renewable. But it is only low single-digit percentages of non-dispatchable renewable.

I think that Lux Research has missed the point of Model 3. It is not a car for the masses, but is an upper middle class car that mostly targets well equipped Audi A4 Quattro.

Gigafactory is essentially needed that Tesla needs enough production capacity for one million cars and someone needs to make the investment. If Tesla produces batteries in house, this can offer significant cost savings as Tesla has better control over the component supply chain.

And 30 % cost reduction of single most expensive component essentially means more than 30 % more profits. . .

Dr. Kenneth Noisewater

I would <3 a Model III with dual or quad motors… Out-Audi Audi!

Lead author Cosmin Laslau is a newly minted PHD in his first job.

I sense that Elon Musk with his decades of accomplishments as an entrepreneur knows more about the business.

The Gigafactory will be scalable and the demand for the Tesla 3 will rapidly escalate once its on the market.

Plus their will be other follow on models afterwards which will continue to drive up demand.

And finally, energy storage for renewables will emerge as a major usage of these cells.

That’s right. Why is anyone even listening to this fellow with just 2 years of work experience? A polymer scientist trying to do economic analysis on top of that.

I’m not saying he’s wrong or right – just that by looking at his credentials I don’t think he has a better insight than others.

With his background, I’ll believe him if he says stuff like projections about future battery chemistry improvements. But for him to come out and guess how many EV’s will sell in 2020??? Come on.

“It’s tough to make predictions, especially about the future.” Yogi Berra,
I would amend that to say correct predictions.
At times I believe research such as this can have a preordained outcome. That is, someone has already made the decision of what the result will be and then tailor their research to equate with their foregone conclusion.
It’s a trap many futurists succumb too.

It’s interesting that every time TSLA hits a high, the shorts are out in force the following day with negative articles.

The author needs to see beyond the automotive applications and look at batteries as energy storage devices with other applications.

It’s not just about the cars.

There is an underlying flaw in the analysis – the assumption that the investment in the factory capacity will reach the maximum irrespective of the demand for tesla cars. But Panasonic negotiated “modular” investment so capacity will follow the demand; ergo, there will be no overcapacity.


I guess that bigger problem will be can Tesla ramp up battery production fast enough, and exactly how many gigafactories it is needed to start constructing by 2020.

We had these same sorts of predictions from big name research firms about the Model S too. Not enough demand and battery costs were the reasons for failure there also. We got to see how that came out. There is no guarantee but I wouldn’t bet against Elon. He has an uncanny way of making the nearly impossible happen in spite of it being nearly impossible.

These researchers don’t have access to all the information needed to make such bold claims. Also there’s too many variables involved for even Tesla to be 100% sure.

However so far anyone who has betted against Tesla has lost, that’s not to say they’ve delivered every single promise exactly on time but it’s been pretty close.

No one can predict what problems the Gigafactory may experience by 2020 because there are many risk factors.

But something I can predict with great confidence: Without the Gigafactory Tesla will definitely fail to build Gen III at the right price and in the needed quantities to be successful.

As with all businesses, it’s all about evaluating risk and making appropriate investment decisions. Without that process, we’d all still be living in caves.

The battery costs include the costs of the cells, the costs of assembling the cells, and the power electronics. Since most of the cell costs are in raw materials, which are unlikely to fall, it’s difficult to see big savings from producing more cells. However, the other costs could drop fairly dramatically.

Even with raw materials the more you consume the bigger discount you get. Also from what I gather on the raw materials front they’re trying to get the cost savings by doing as much processing as they can themselves and so cutting out middlemen.

Lux says:
“Tesla has the lowest cost – about $274/kWh, according to Lux Research analysis. Tesla founder Elon Musk aims to cut cost by 30%, on the strength of scale, location and technology, lowering the price to $196/kWh with the Gigafactory.”

McKinsey says*:
“In the United States, with gasoline prices at or above $3.50 a gallon, automakers that acquire batteries at prices below $250 per kWh could offer electrified vehicles competitively, on a total-cost-of-ownership basis, with vehicles powered by advanced internal-combustion engines (exhibit).”

If they’re both correct and gas prices don’t drop then then there should be a huge demand for EV batteries at $196 per kWh. And as others have mentioned, the real figure is probably going to be even lower than that.


Lets just make up some numbers!

My Annual Sales Estimates:

Model S: 60,000 (7 series does ~60K world wide)

Model X: 100,000 (X5 ~100K World Wide, MB GL ~30K USA, Audi Q7 ~27K USA/CN/Europe)

Model III: 100,000 (3 Series ~100K USA/~500K World Wide)

Model III(Crossover): 50,000 (X3 ~30K USA/ ~150K World Wide, Range Rover Evoque ~120K World Wide)

For a Total of ~310K in cars. Not too bad, I mean without moving even farther down stream and capturing average buyers, non-luxury, I don’t see them getting too much more without another model and more body variants. If they only have the Model S covering the top end and the Model III aiming at the 3-series then there will still be a huge chunk of sales in mid-sized executive saloons being un reached. that 49,000-70,000 price range. While the S just misses it currently.

Quoting Lux Research From Mr. Lovedays’ story above: […]BOSTON, MA – September 3, 2014 – Tesla Motors’ plan to build a new 35 GWh lithium-ion cell production facility – dubbed the Gigafactory – for electric vehicles that will bring about only a modest reduction in battery costs, and create SIGNIFICANT OVERCAPACITY, given likely sales of less than half the targeted 500,000, according to Lux Research.[…]” Huh, that’s funny. In a release by Lux Research, July 15th of THIS YEAR, Lux Research calls the demand capacity target for Energy storage both staionary and mobil(Electric Fueled Vehicles)topping 120 GWh or nearly 4 times what they refer to as 35GWh- OVERCAPACITY of the Gigafactory by 2020! “[…]BOSTON, MA – July 15, 2014 – Energy storage, driven largely by electronics and plug-in vehicles, will grow at a compound annual growth rate of 8% to $50 billion in 2020, with dramatic shifts coming from the transportation industry, according to Lux Research. Transportation applications will outpace electronics growth – attaining an 11% CAGR to become a $21 billion market by the end of the decade. Its faster growth will close the gap with electronics, which still will remain the single largest market valued at $27 billion.… Read more »

The number one mistake in this analysis is assuming this factory will be built to 500k unit volume from the get-go.

Tesla already said it will scale upwards so there will be no such thing as “overcapacity”. I’m pretty sure Tesla/Panasonic isn’t as dumb to repeat the same mistakes as previous failed battery ventures (like A123 for example). They ramped up the volume for the Tesla car factory and there’s no good reason why they won’t do the same for the battery factory.

That scenario is not likely to say the least. In more there are a number of jokers in Elon’s play. The first one was mentioned; stationary storage, but you have also these:
– Tesla truck: a would be major demander of batteries
– Toyota EV: fool cells are nice until you it the wall of reality, in panic Toyota will likely do a U-turn and call on Panasonic to supply since they already supply for the Prius.
– EADS E-fan: It started slowly but there is already demand, as larger size planes are envisioned for short flights up to 737 sizes, a massive demand for batteries would arise.
– Robotics: anybody? Well not yet but in a few years it could be all over the place running on batteries.
– Amazon: drone deliveries aren’t allowed yet, but what if next they are? Battery demand again.
– Electric boating: still more batteries.
But in the end my own scenario is that gigafactory 2 and 3 are going to be build as well in Europe and in China, perhaps even a second in the US.

With battery upgrade options to Roadsters, Model S and X, battery change stations and solar batteries for Solar City – can there even be an overproduction of batteries?

While the investors who short Tesla and lose ultimately help Tesla, it would be helpful if insideEVs did some fact checking on this article:

1) Where do they get $274/kWh from? Is this accurate?

2) Where do they get the idea that the model III will only be a 36 kWh battery? A 50-66 kWh is expected to meet promises of a 200 mile (American mile) range. This would be a savings of which is a minimum of $3900. Using the history of a 25% margin, we are looking at $5200 consumer savings.

3) What benchmarks do they propose for success? For example the best line in the whole release:
“Panasonic would take in only $7 billion on its likely investment of $1.4 billion…”

Sounds good to me. 🙂

“… of the initial $4 billion required to build the Gigafactory…”

ooops, party over, outa’ time..

good luck with your short(s)