If Tesla goes this new route, how much money could the Silicon Valley automaker save?

Summary

Tesla hasn’t come right out and said they are going to make their own line of batteries but at this point based on their acquisition of Maxwell and Hibar it seems to be a given. Maxwell is known for its high-speed dry electrode manufacturing process and Hibar makes battery line manufacturing equipment.

We estimate the cost savings for Tesla’s new battery line at approximately 20%. The bulk of this cost reduction is due to an increased line speed (production rate) facilitated by Maxwell’s new solvent-free dry electrode manufacturing process.

Our estimate is for finished battery packs — not just cells — and it includes other secondary benefits derived from no "middle-man" markup (Panasonic), integrating pack and cell production, using the Hibar custom high-speed battery manufacturing equipment (such as its high-speed electrolyte filling equipment), higher energy density from increased electrode coating thickness, and possible reductions in formation cycling and charge retention testing.

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Discussion

Maxwell’s solvent-free, dry electrode manufacturing process

We covered Maxwell in two earlier articles (ref 1, ref 2). Maxwell’s big selling point is their dry electrode manufacturing process, which can increase line speed (production rate) up to 16 times (we used four times in our analysis). As we mentioned in the summary, this increase in line speed is where the bulk of the cost savings is derived.

We don’t have a lot of details of Maxwell’s dry process but we imagine it perhaps similar to electrostatic painting or powder coating, thus the term “dry.” Traditional coating process uses a solvent-based electrode coating procedure that has very expensive equipment and uses up a large percentage of the factory floor as we show in the following figures.

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Argonne labs did a bottom-up analysis and computer program of the battery manufacturing process entitled: “Modeling the Performance and Cost of Lithium Ion Batteries for Electric Vehicles ANL 11/32”.

Its report shows that the direct labor cost associated with the solvent-based electrode coating process is 11% of the total pack labor costs, the capital equipment costs are 15% of the total plant equipment costs, and the factory floor area is 11% of the total plant area.

In addition, our research indicates solvent drying times around 100 minutes. In other words, the old solvent-based electrode coating process is time-consuming, labor-intensive, the equipment is expensive and it uses up a large part of the factory.

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Traditional Solvent-Based electrode coating process is labor-intensive, expensive, and uses a large part of the factory floor. Source: “Modeling the Performance and Cost of Lithium Ion Batteries for Electric Vehicles ANL 11/32”.

However, just because the traditional solvent-based electrode coating process uses 11% labor doesn’t mean you save 11% in the final battery cost. You can see from the Argonne report that direct labor costs are only 4% of the total pack costs. We used the figure below to estimate how much-increased line speed (production rate) would lower pack costs.

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This figure was used to estimate the effect of line speed (production rate) on pack costs.

What happens when you increase the production rate by a factor of four?

Some costs stay constant even though you are making four times as much product so your, which brings you per-item cost down. In the above figure, we assumed that Direct Labor, Overhead, General sales, administration costs and research and development costs would remain constant even at four times the production rate. Contrarily, things such as materials and purchased items would go up by a factor of 4.

The costs that remain constant are 16% of the total cost of the pack. So, if you double your production rate, those costs go to 8% and if you double production rate again (to a factor of 4) those fixed costs drop to only 4%. Therefore, increasing the production rate by a factor of four drops your costs from 16% to 4%, thus equating to a 12% cost reduction for increasing your production rate by a factor of four. With that being said, it's potentially a 12% cost reduction for increased production rate shown in the figure 1 summary above.

No middle man

If you make your own batteries, you eliminate the middle man and his associated markup. We don’t know how much Panasonic marks up their batteries but we expect it is not that much. The Argonne pie chart above shows a 4% mark up so that’s what we used in our analysis. A recent article in WSJ detailing the travails of the Panasonic/Tesla relationship suggested Panasonic was losing money on its Gigafactory battery operation (ref).

Miscellaneous cost reductions

We assumed another 4% in miscellaneous cost reductions as follows.

Integrating pack and cell production

We covered this fairly extensively in two other articles (ref 1) and (ref 2). If your end-product is a battery pack as opposed to a battery cell, then it makes no sense to have two wholly separate manufacturing facilities (one for cells and another for packs). There should be some synergies for combining the two processes as much as possible.

In ref 1 we described a Tesla patent that outlined some possible ways the two processes could be combined. As an example, the traditional current collectors on top of the battery pack are replaced by a circuit board. This circuit board acts as the end plates of the cell and also contains such functions as cell fusing, cell overpressure and cell balancing. The result being something like a printed circuit board. Filling the cell with electrolyte would be faster if it is done with both cell ends removed. Also, we know that Hibar makes high-speed electrolyte filling equipment.

There are other parts of the cell manufacturing process that could be speeded up as well. This can be seen in the following figure from the Argonne report.

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Source Argonne

We’ve highlighted some good areas for improvements.

Formation cycling and charge retention testing

These two parts of the manufacturing process consume 13% of the total direct-labor charges and 20% of the factory floor area as shown in the above figure. During formation cycling, each cell is charged to 100% and then discharged and then the capacity of the cell is measured. During charge retention, the cell is charged up and left to sit for some amount of time to see if it holds a charge. If it doesn’t hold a charge or have sufficient capacity, it is scrapped. It’s easy to see why this process is so time-consuming.

As a far fetched example of streamlining this process, imagine if one had sufficiently high-energy-density cells or sufficiently defect-free cells that one could afford to have a certain percentage of those cells end up in the finished pack. Imagine that the cells totally skip formation cycling and charge retention testing. This process could be carried out in the pack and it would greatly speed up production.

At any rate, good food for thought, and you can see that there appears to be plenty of areas where the making of cells and packs can be streamlined.

The above analysis was our own attempt to quantify how much Tesla could reduce costs with its new line of batteries.

We have another source that seems to validate our analysis: Maxwell estimates a 10-20% cost improvement as well as shown in the following figure.

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Maxwell estimates a 10-20% cost improvement with their new manufacturing process.

With all of the above being said, what's you take on this potential Tesla innovation? As always, we love to hear from you in the comment section.