Tesla to make the cheapest EV batteries with billions in annual government subsidies

The US$3.6 billion Nevada Gigafactory expansion that Tesla recently announced means that it will have 60%-70% lower capital expenditures to produce a GWh of battery capacity than the leading Chinese and Korean battery makers, according to Morgan Stanley analyst Adam Jonas. Coupled with the government subsidies for made-in-America batteries specified in the Inflation Reduction Act, Tesla will be able to do for EV battery production costs what it already did for electric vehicles, namely making them in the most efficient way possible and raking in record profit margins.

Tesla is best positioned for "riding the cost curve down" in batteries as it did for cars, added the analyst, all the while "lessons from the past teach us that once a technology is industrialized, and heavily subsidized, it tends to destroy returns" for battery makers.

The Inflation Reduction Act includes annual subsidy of US$35/kWh for made-in-USA batteries and at the announced 100 GWh 4680 battery capacity expansion of the Nevada factory, Tesla will be making US$3.5 billion per year just from government subsidies alone. Moreover, the US$35/kWh made-in-US battery subsidy could be further extended with extra US$10/kWh in tax credit for the whole pack as well as long as it is assembled in America. According to Elon Musk at the last quarterly session with investors:

Regarding batteries, production rate of 4680 cells reached 1,000 cars a week at the end of last year, and we're increasing capacity for 4680 cells by another 100 gigawatt-hours as announced at Giga Nevada yesterday. Our long-term goal is to get to well in excess of 1,000 gigawatt-hours of cells produced internally and continue to use the self cell providers. So to be clear, we will continue to use other cell providers. Just that the demand for lithium ion batteries is quasi-infinite and will be for quite some time. So we feel we can scale a lot faster using both suppliers and internally produced cells. And we've got an amazing plan for making the 4680 cell low-cost and high energy density... 

Long term, we expect these -- the value of these credits to be very significant. You can do the math if we were to get anyone your 1,000 gigawatt-hours a year of production or even a few hundred gigawatt-hours, it's very significant. So -- but the credits do rely upon domestic manufacturing. And in the case of Panasonic domestic manufacturing, we're splitting the value of the credits. So it -- the value of credits this year will not be gigantic, but I think it could be gigantic -- we think it probably will be very significant in the future.

Tesla already earns nearly US$10,000 per vehicle in net profits as it is on a constant quest for production cost efficiencies which, as the one and only Sandy Munro explains in the video below, even comes down to procuring the exact cabling length needed and not an inch more throughout the vehicle. Compare that to Ford's recent realization that they included nearly one mile of wires in the Mustang Mach-E that is actually not needed for the vehicle's operation and Tesla's head start in EV production efficiency becomes rather obvious.

The Inflation Reduction Act's government subsidy bonanza caused a veritable scramble among both EV and battery makers to plan or expand cell factories in the US and Tesla will be riding on that money train, too, as the tax credits will be doled out until 2032. Besides the Gigafactory Nevada 4680 battery manufacturing expansion, Tesla has also acquired permits for new battery facilities in Giga Texas and is probing the construction of a lithium refinery on the Gulf Coast.

The 4680 cell-to-chassis power system it puts in the Model Y assembled at Giga Texas is already much cheaper to make than the SUV's regular Panasonic 2170 battery at about the same adjusted energy density, and Tesla-made cells seem destined to go down in price further in the future, making its electric vehicles even more competitive. 

Get the Tesla Motors 24' Cable Wall Connector on Amazon