Musk’s Battery Bet: Tesla’s 4680 Cells Struggle to Undercut Supplier Costs Despite $46 Billion CEO Package

Musk Claims Purchasing Electric Vehicle Batteries from External Vendors is More Cost-Effective Than In-House Production

During Tesla's yearly meeting with shareholders on Thursday, CEO Elon Musk described his role in the company's trajectory as a beneficial catalyst, while shareholders greenlit a compensation plan for Musk worth $46 billion, contingent on the present value of the stock.

In 2024, a key factor that was anticipated to alter the course of the company, lower expenses, and facilitate the production of a $25,000 Tesla electric vehicle by 2023 and the large-scale manufacturing of the Semi by 2021 has not materialized: the significant decrease in the price of Tesla's 4680 battery cells.

Musk emphasized that while they are on track to achieve cost equivalence with their cell production by the end of the year, it is a challenging goal to reach.

During Battery Day, Musk shifts focus to matching costs

As Musk discusses achieving equivalent costs, Tesla's landmark strategy involving its batteries has evolved considerably since its unveiling at the September 2020 Battery Day. At that event, Tesla spotlighted the 4680 cells and its own forthcoming manufacturing of these cells as the key highlight. The company asserted that it could produce this innovative cell at a 50% reduced cost compared to what suppliers charge, based on energy capacity. Tesla even suggested the possibility of providing these cells to other car manufacturers.

Examining the Differences Between the 4680 and the 2170 –

On Thursday, Musk disclosed that the price of our 4680 batteries is presently higher than that of our suppliers. He pointed out the fluctuating nature of the costs associated with electric vehicle batteries. He stated that although they are more expensive now, they were actually cheaper than the suppliers' prices a year earlier.

He mentioned that there's an inconsistency in the supply of battery cells, similar to what's seen with VRAM chips. However, he anticipates that by year's end, they will manage to match or even significantly undercut the current prices offered by cell suppliers.

Tesla's major investment in batteries hasn't yielded returns so far

The pricing of electric vehicle (EV) battery cells has certainly fluctuated wildly. Following Battery Day, the cost for EV batteries escalated to unprecedented levels in 2022, affecting the cost-effectiveness of EVs. Prices for lithium-ion batteries have been on the decline throughout 2023 and continue to fall this year, with no indication of a plateau. Analysts at Goldman Sachs predict that the prices for EV batteries will drop by almost 40% from 2023 to 2025, which is expected to stimulate an increase in sales.

Tesla's Battery Event – Larger Scale Reduces Expense

From various angles, the financial dynamics of the electric vehicle (EV) battery market have undergone a significant shift since Battery Day. Currently, there's an overwhelming surplus of battery manufacturing capability, especially when looking at China's production. A recent evaluation by Bloomberg New Energy Finance from earlier this year indicated that China alone is producing a sufficient number of batteries to meet the entire global demand for EVs. Furthermore, when it comes to design, no other major car manufacturer has pledged to adopt the 4680 cylindrical battery model (measuring 46 mm in diameter and 80 mm in height). For example, BMW has chosen to go with the 4695 battery model, which maintains the same 46 mm diameter but extends the height to 95 mm.

Musk stated in 2021 that Tesla's mass production of the Semi would be unfeasible without the company manufacturing its own 4680 battery cells. It was during this week's event that Musk verified the Semi has reached a level of increased production.

In 2021, the chief of Panasonic's battery division mentioned that large-scale production of the 4680 battery cell would necessitate innovative methods. However, this challenge has not deterred other leading battery manufacturers from competing to produce this new model.

The 2025 model of the Tesla Cybertruck, presented by Tesla, Inc.

During Tesla's first-quarter earnings call in April, Engineering Vice President Lars Moravy provided an update on the production of the 4680 battery cells. He indicated that the current output is on track to reach approximately 7 gigawatt-hours annually. This rate is sufficient to meet the manufacturing demands of the Cybertruck, the sole vehicle model that utilizes these cells.

Musk has indicated that while Tesla might be on par with competitors in terms of battery technology, achieving a 50% reduction in cost seems just as unlikely today as it did back in 2020.

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