Let’s talk about some hints that Tesla dropped in the last quarterly call for what we might expect at the upcoming battery day event. And how Tesla is pulling something from Apple’s playbook.

Last year I put out videos on why I thought Tesla bought Maxwell Technologies, and also dove into the details of the Jeff Dahn Research Group’s paper about the million mile battery. Since those videos came out there’s been even more news from Tesla around their purchase of Hibar, details on the team working on Project RoadRunner, and the CATL partnership in China to supply lithium iron phosphate batteries (LFP) for the Tesla Model 3 produced there. But more on that in a minute. All of those moves are providing pretty interesting indicators for where Tesla’s big battery day announcement may be heading. However, for me, some of the most interesting hints were dropped on the Tesla Q2 call that happened a few weeks ago. Those hints are helping to add a little context and clarity that’s looking like a subtle wink and nod from Tesla.

Back in May of 2019, when Tesla purchased Maxwell Technologies, there was a lot of debate around the primary reason for that purchase. Was it for the dry battery electrode manufacturing, their ultracapacitors, or a bit of both? To me it seemed pretty clear that it was primarily about the dry battery electrode manufacturing technique. And something they said on this recent Q2 call reinforced that:

“The real limitation on Tesla growth is cell production at affordable price. That’s the real limit. So that’s why we’re going to talk about a lot more about this on Battery Day because this is a fundamental scaling constraint.” -Elon Musk, CEO

Tesla’s production and sales rate is increasing dramatically and being able to supply their car and Energy business with enough cells is their biggest hurdle.1 2 During the Model 3 ramp up they were cell-starved and had to redirect production from Tesla Energy into the car side of the business to make it happen.3

Batteries built using the DBE method show greater than 300 Wh/kg with a path to over 500 Wh/kg. By comparison, Tesla’s current battery technology, which is considered one of the highest specific energies available today, is believed to be around 250 Wh/kg.4 That means this technique could add about 23% to Tesla’s current battery energy density with room to double it.

But it’s not just about increased energy density, it’s also cost reduction and production capacity. The typical battery production process involves using wet, toxic chemicals to create the cathode, which then has to be dried and baked off. That involves a lot of floor space and ovens for that step in the process. With the DBE method, you skip that step completely which results in a 16x production capacity increase. You’re able to produce a lot more batteries in the same amount of factory space. You also save cost by eliminating that step as well for about a 10-20% cost reduction.

It’s a one-two punch for rapidly scaling up the number of cells in each factory, as well as potentially getting some energy density gains on top of that. Pair the dry battery electrode method with Hibar Systems that they acquired late last year, which is a company that specialized in automated assembly systems including vacuum filling systems for Lithium-ion batteries, and you can start to see Tesla’s automated battery factory taking shape.5

Which brings me back around to Jeff Dahn’s research team that’s been quietly working behind the scenes on a new battery chemistry for Tesla. This one is still in a black box of secrecy, but I’ve spoken to several people who are far more familiar with the tech and players involved, and each one has said virtually the same thing to me, “You’re going to be blown away.” Take that with a grain of salt, but I’m inclined to believe some of the insider hype I’ve been hearing. This is pure speculation on my part, but I don’t expect this to be a solid state battery. That kind of tech is still years away. I think an updated chemistry is going to be an evolution of where lithium ion battery tech has been heading, but it’s going to be a jump in longevity and energy density.

Again, this development pairs nicely with the Maxwell Technologies DBE for a … what would that make it … a one-two-three punch? So I think it’s safe to say we should expect an improved battery for longevity and energy, but don’t get your hopes up for a car that will go 600 miles. This is something I’ve been saying for a while, and I get asked about it a lot. I had some lengthy and lively conversations about it with folks at the Fully Charged Live event in Austin, Texas at the beginning of … wow … face to face conversations … that feels like a different era.

Anyway, I’ve been pushing the point of view that we should be expecting similar ranges for roughly the same amount of money. The big play here is scale and cost. Fewer cells in a battery pack reduces weight, which also helps with range, as well as frees up those cells to produce more cars, Powerwalls, Megapacks, etc. To me the following quote was the biggest hint of that on the Q2 call:

“I think the new normal for range is going to be, just in U.S. EPA terms, approximately 300 miles. So I think people will really come to expect that as some number close to 300 miles as normal.” -Elon Musk, CEO “They want some reasonable margins. So I think 300 is going to be really — or close to 300 is going to be a new normal, call it 500 kilometers, basically, roughly.” -Elon Musk, CEO

It doesn’t mean that Tesla won’t offer higher end models with some crazy ranges, but the base models are going to keep this 300 mile baseline target. It’s good for the business and for consumers. It avoids the Osborne effect, which Tesla could be in danger of if they oversell the hype for the new battery tech and it isn’t available across the board in every model. Why buy a Model 3 today when you can get the crazy 600 mile version sometime later. They don’t want that … we don’t want that.

In case you haven’t heard of the Osborne Effect, it’s a reference to a computer company from the early 1980’s that went bankrupt by over-hyping a future computer that killed all of the sales for their current models. It’s why I keep telling people who ask me if they should wait to buy their Tesla until after battery day, “no … don’t wait.” If you want and need a car right now, buy it. A new chemistry is most likely going to show up on limited models, like the Roadster and perhaps the plaid Model S. It’s going to take time to ramp up, drive those prices down, and be able to integrate it into more and more models. But even then it doesn’t mean that we’re suddenly going to see a 600 mile Model Y.

And that brings me to the final hint from the Tesla Q2 call, which involves battery partnerships like CATL. This is another reason why I’m telling people to not wait to buy a Model 3 or Model Y. Tesla is getting more flexible about using whatever battery technology is best for the current need and job. That’s something I’m a big fan of. There isn’t one tech to rule them all … it’s all about trade-offs.

“What we’re seeing with our passenger vehicles is that our powertrain efficiency and tire efficiency, drag coefficient like basically all of the things that, like, you know, our HVAC, going to a heat pump, basically our total vehicle efficiency has gotten good enough with Model 3, for example, that we actually are comfortable having an iron phosphate battery pack in Model 3 in China. And that will be in volume production later this year.” -Elon Musk, CEO

In China they’re using lithium iron phosphate (LFP) batteries instead of their nickel manganese cobalt (NMC) batteries. LFP batteries don’t have the same high specific energy, or energy density, as NMC batteries, but as Elon pointed out in the call, that’s fine. The internal specs don’t matter … it’s all about the user experience. If you’re able to hit that 300 mile range with an LFP battery in a Model 3, along with keeping prices down even though it adds a little weight, that’s not a problem. But in the Tesla Semi, where every pound matters because it will affect how much cargo you can carry, you’re going to want to get the most energy dense battery pack you can. Less weight, more miles, means more cargo.

Being nimble and flexible like this with suppliers also means Tesla isn’t dropping their long standing relationship with Panasonic, as was rumored a while back.6 And the rumors that Tesla may be ramping up to produce their own batteries is most likely true given what we’re seeing and hearing about Project RoadRunner7 … and expanding battery partnerships solidifies that. Tesla needs as many cells as they can get, so producing their own, continuing to ramp up battery production with Panasonic, while adding CATL and perhaps others down the road makes perfect business sense.

I know people hate it when I make this comparison, but Tesla has a lot of similarities to Apple. Stick with me on this before starting a flame war in the comments. Tesla may differ from Apple in motivation, but purely from an operational point-of-view there’s a lot of similarities. Apple’s vertical integration strategy centers around hardware, software, services, and retail. Owning that full stack allowed Apple to bring the iPhone to market years before the competition. Or to transition all of their mobile products and software to a 64-bit architecture way before anyone else. And also to create a smart watch that has no real competition to this day.

Tesla is pulling off something very similar with their vertical strategy, which also involves hardware, software, services, and retail, but adds manufacturing to that mix. But taking a page from Apple’s playbook, they’re opening up and expanding their battery supply chain. Because of Apple’s size and scope they’re able to negotiate deals that lock up supply chain resources from multiple sources for things like RAM.8 9 10 Tesla is able to do something similar because of their growing size and scope. They’ll be able to negotiate deals and lockup significant portions of battery production throughout the supply chain that their competitors can only dream of. And by locking up those deals at low prices it will make it harder for the competition to catch up in a cost effective way.

I always get a lot of hate when I make this kind of comparison, but keep an open mind and take a look at a great article from Ark Invest on this exact topic. It does a great job summarizing my take on it. My favorite bit from that article is showing Apple’s revenue trajectory from when they started to claw themselves back from near bankruptcy in the early 2000’s to now, compared to where Tesla has been going from 2014 to now. We’re watching the next iPhone moment happen in real time here.

Unless Tesla has to push battery day again due to health concerns, there’s going to be some really exciting news coming out of Tesla at the end of September. We should be seeing the unveiling of Project Roadrunner, which is going to have a heavy focus on battery manufacturing and the incredible efficiencies that Tesla has been able to gain. We’re most likely going to hear about a new chemistry that’s going to unlock the full potential of everything from the new plaid Model S to the Tesla Semi. And we should get more details on supply chain partnerships and how Tesla is expanding its battery offering to support their growing battery needs, but also to use the right battery for the right job. And for Tesla’s competition that thought they were about to catch up or pass Tesla on a spec war, they may be getting a little bit of a surprise on that front.

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