If you were looking to nominate a technology as the most influential of the early 21st century, batteries would be a logical choice.
Cheap, compact batteries made smartphones and mobile computing possible, and larger and more powerful batteries represent the enabling technology behind electric mobility, renewable energy and the smart grid.
As is the case with any new technology, the applications of battery storage expand as its cost falls. Increasing demand leads to more production, which drives continuing cost reductions and performance improvements in a virtuous circle.
Over the past decade, battery costs have seen a dramatic drop—from over $1,000 per kilowatt-hour in 2010 to around $156 per kWh in 2019, according to BloombergNEF. That’s getting very close to the “magic number” of $100/kWh that many believe will bring EVs to price parity with legacy vehicles, and end the Oil Age. What factors have contributed to this rapid reduction in prices?
Timothy B. Lee, writing in Ars Technica, points out that Tesla has played a major role, not only by bringing electric cars into the mainstream, but by focusing on the importance of battery tech from the start. “Tesla has been a battery company as much as it is a car company,” Lee writes. “Tesla recognized the potential scale of the battery market before most other companies, and has become a leading player in the market for grid storage.”
Tesla followed a classic tech-industry strategy of starting with a low-volume, high-cost product (the Roadster) and progressing to lower-cost mass-market offerings (Models 3 and Y). This iterative process was enabled in large part by falling battery costs. “Model S was designed and introduced about five years after the Roadster, and we saw improvements of around 40 percent on the battery technology, the fundamental chemistry, the packaging of the battery pack itself,” JB Straubel said in 2014. “That directly translated into how we can get close to 300 miles of range in a Model S, almost 85 kWh of energy storage in a pack that’s actually smaller than the Roadster pack.”
As more batteries get produced, economies of scale kick in, and companies learn how to streamline production processes and squeeze out costs. As Mr. Lee explains, economists measure this cost reduction in terms of the learning rate, defined as the percentage decrease in cost for every doubling of manufacturing output. BloombergNEF estimates that, in 2019, the learning rate for batteries was 18 percent. In other words, battery costs fall by 18 percent every time global battery output doubles.
Bloomberg believes that the industry will reach the portentous $100/kWh price point by 2023. Some industry observers suspect that Tesla is already close to achieving the Grail, and will make a historic announcement at Battery Day on September 15.
It isn’t just cars that are driving demand for batteries. Stationary storage for utility applications is a huge growth area—Elon Musk has said that Tesla’s battery business may someday outgrow its automotive angle.
Justin Rowlatt, writing for the BBC, agrees. “Gigantic batteries connected to our electricity grids are going to be central to the great renewable energy revolution,” he writes.
Professor Paul Shearing, a battery expert at University College London, told the BBC that the world is entering “a nearly exponential growth phase.” He points out that Tesla’s vaunted “million-mile battery,” expected to be revealed in September, will not only be good news for EV sales. Longer-lasting batteries are also essential in stationary storage applications.
Utility-scale storage systems use a lot of batteries. In 2017 Tesla installed the world’s largest lithium-ion battery system at the Hornsdale Wind Farm in Australia, with a storage capacity of 129 MWh—equivalent to 2,000 Model 3s or 10 million smartphones. This year, the site’s capacity was increased to 185 MWh. Even so, it will be dwarfed by the planned Manatee Energy Storage Center in Florida, which is supposed to have a capacity of 900 MWh and go online in late 2021. Clearly, more economies of scale, and corresponding price reductions, are coming.
Another avenue to lower cost would be reducing the costs of raw materials such as lithium. Despite the scare stories you may have seen, there’s no risk of a shortage—lithium is plentiful around the world. However, it could emerge as a bottleneck as demand mushrooms, because current methods of extracting lithium from salt deposits are slow and inefficient. Mr. Rowlatt writes that, at the Salar de Atacama in Chile, the evaporation process used to produce lithium salts takes months, and recovers only 30% of the available lithium.
Various companies are working to develop improved refining methods. The BBC reports that EnergyX is developing a new type of nanoparticle filter, which it hopes will be able to recover lithium from a salt solution at a 90% efficiency rate, while reducing the time required from months to days. Another innovator is Lilac Solutions, which is testing an ion-exchange process on the rich lithium deposits at California’s Salton Sea. Tesla, meanwhile, hopes to exploit a huge and easily exploitable trove of lithium in so-called Lithium Valley, just a couple hundred miles north of Gigafactory 1 in Nevada.
So, we see that Tesla is working on several fronts to keep battery costs coming down. As a recent article from Loup Ventures points out, other automakers are falling farther and farther behind. As Gene Munster writes, “We believe Tesla has a competitive advantage in batteries that is under-appreciated by investors. In the future, we expect that advantage to widen.”
By all accounts, Tesla’s batteries are the best in the industry—but that’s not the only advantage the California company enjoys. Its battery supply chain is more mature and robust than that of other automakers. Munster points out that Tesla has strong relationships with battery suppliers. Most of the company’s battery cells are manufactured by long-time battery partner Panasonic at Tesla’s Nevada Gigafactory. Loup Ventures believes that over 60% of Panasonic’s battery cell production is currently going to Tesla.
Above: A broad overview of battery electric vehicles using Tesla's Model S as an example; Note: Since this video aired, Model S range has increased to over 400 miles of range (YouTube: Bloomberg Technology)
Recently, Tesla has also begun working with China’s CATL and South Korea’s LG Chem. As if that weren’t enough, the company is also widely believed to be working on its own battery cell design, which likely uses a new, proprietary chemistry. With its recent acquisitions of Maxwell Technologies and Hibar Systems, Tesla has secured access to cutting-edge battery tech that is sure to lead to further cost reductions. Maxwell’s “dry electrode” manufacturing process could allow Tesla to remake its battery production line, saving loads of money, time and factory space.