How Tesla Exemplifies The Paradox Of The Energy Transition

GRUENHEIDE, GERMANY – SEPTEMBER 03: Tesla head Elon Musk talks to the press as he arrives to to have … [+] a look at the constructi...


Tesla’s
TSLA
admission to the S&P 500 is another milestone on its journey to become the most valuable auto company in the world. Such rapid growth, though, creates heightened expectation, and there was both investor and media disappointment following Tesla Battery Day in September. Shares in the company dropped. Journalists complained that there was no grand reveal of Tesla’s new battery pack and many commentators questioned the newsworthiness of the event, prompting CEO Elon Musk to accuse the media of a lack of understanding. The public reaction was maybe a reflection of the two worlds Musk straddles as a rock star CEO with forty million Twitter followers, and as a deep tech thinker obsessing about complex battery chemistries and lithium supply chains.

The DNV GL team behind the Energy Transition Outlook has put aside hype around the company’s stock price and expectations from Twitter followers and has been running the numbers on Tesla Battery Day to assess its significance. And the verdict? This is a major breakthrough on battery cost and range developments. Elon Musk has every reason to be disappointed by the lukewarm reception. Indeed, if Tesla’s ambitions to reduce the cost of batteries are realized, then it will be an important step towards the end of the internal combustion engine for mass private transport. It will also leave Tesla with more than a one third share of the worldwide battery market by 2030 and place it even further ahead of its electric vehicle (EV) competitors.

The narrative produced by Tesla Battery Day is full of hypotheticals and questions. Should Tesla really be thinking about mining their own raw materials? Can the company really hit its battery production targets? It is easy to cherry pick from Tesla’s track record of missed targets to speculate about their plans, but that is not what we will do here. Outside of the conjecture, there is a fascinating story unfolding as the race to reduce battery costs gathers momentum.

Tesla is already thought to be producing battery packs at least 20% below the average market cost of $157/kWh and its intention to push costs down by a further 56% would put the company on track to achieve a battery cost of around $55/kWh before 2025. That is significantly below the benchmark number of $100/kWh at which EVs are widely thought to reach cost parity with internal combustion engine vehicles (ICEVs). ICEVs are not able to keep pace with cheapening battery costs, so owning a V8 sedan is likely to be a philosophical choice rather than an economic one in the near future. Especially considering that Tesla’s cheaper batteries promise to come with a more-than-50% range improvement.

Tesla’s plan for cheaper and better batteries is not just a problem for combustion engines, it also sets a benchmark for its competitors. If Tesla delivers, it will run ahead of DNV GL’s battery cost learning curve (see graph below), which forecasts that battery costs will fall 19% for every doubling of capacity. That means Tesla potentially can dominate the EV market beyond the high end price range. And it will serve as an inspiring – and maybe frustrating – benchmark for fellow EV manufacturers.

As spectacular as the numbers appear, producing batteries this cheaply, even if it is ahead of DNV GL’s forecast, is still roughly in line with the Outlook’s EV forecast. Our estimate is that half of new cars sold globally will be electric in 2032, so Tesla is doing what it needs to do to remain a market leader. But is the company doing what it should to lives up to its mission statement, which is to “accelerate the world’s transition to sustainable energy’?

Tesla is unquestionably shifting the needle on EVs, and along the way it aims for sustainability wins like ending cobalt use, reducing wastewater and spurring battery recycling. The recent announcement of a second, and much larger, utility scale battery storage facility in South Australia using Tesla ‘mega packs’ suggests that Tesla is well on the way to making a material difference to the storage market, vital for the growth of variable renewables (vRES).

But Tesla is pushing an open door with vRES in an already-electrifying world. With or without Tesla’s momentum, DNV GL predicts that solar and wind will supply over 60% of the world’s electricity by 2050, which by then will have doubled from today’s levels. Or in other words, the electrification is happening fast, and is already factored into DNV GL’s forecast of our most likely energy future. It is the hard-to-abate sectors linked high heat processes in manufacturing and heavy, long distance transport, where the current momentum is lacking and the additional actions are needed for cutting emissions.

In this sense, Tesla, exemplifies the paradox of the current path of the energy transition: we cannot build our way out of the climate crisis. Technology is transforming our energy mix and in theory can deliver a future which meets the Paris Climate Agreement. Yet we are on course to blow past the Agreement’s carbon budget limits because technology on its own is not enough.

On batteries, on pv and on wind, we are roughly on track. On the other sectors, those that are (even) harder-to-abate, we need other Teslas going from mega to giga or even tera, that lead the way with innovative thinking and equally strong implementation. And we need the government toolbox to be applied in full to assist them.

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Newsrust: How Tesla Exemplifies The Paradox Of The Energy Transition
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