How important is Tesla’s Model 3 to the sustainable energy transition?

Tesla's 200-mile, US$35,000 Model 3 at its launch last week. Image: Flickr user: Steve Jurvetson.
After claiming that interest in Powerwall and Powerpack was “overwhelming” and “crazy” seven months before the first commercial installations began, Tesla CEO Elon Musk announced that close to 400,000 people have reserved a Model 3, due next year.

If all who have put down their US$1,000 (£1,000 in the UK) deposit follow through and buy one, the new “long range, affordable” family car which nonetheless can do 0-60mph in less than six seconds would be worth several billion dollars to the company, right from the get-go.

The fact that a car designed to compete with the BMWs and Audis of this world comes from a company whose mission is avowedly to accelerate the global transition to sustainable energy will continue to win Tesla admirers across our industry.

While excitement over the car itself has been unrestrained from fanboys and press alike, with its futuristic panel display replacing the dashboard and several ‘autopilot’ features that appear to anticipate progress towards self-driving cars, Musk’s presentation of the Model 3 last Friday began with a lengthy explanation of this underlying motivation.

“It makes a difference if we accelerate the transition to clean transport,” Musk said, referring to global temperature rises in recent decades.

The car itself has already been much talked-about, while Musk continues to tweet fresh information, hints and cryptic clues about its tech spec. The coming of Model 3 and GM’s Chevy Bolt, which has a similar range and price bracket, could herald a step-change in EV markets over the coming three to four years.

Big targets will require big efforts

However, the bigger question for the energy storage (and solar) industries might be how this will affect the Gigafactory’s utilisation and therefore the role Tesla will play not only in accelerating the transition to clean transport, but also to clean energy overall. This is because although Elon Musk has said that Tesla could be guided to ramp up the Gigafactory just to fuel demand for Tesla Energy’s stationary storage, the reality is that the facility is tentatively planned to scale up to producing 50GWh of batteries, or 35GWh of finished packs, by 2024, making it likely there was an element of hyperbole in his words – although the picture may become clearer when Tesla makes its next few rounds of quarterly reports later in the year.  

In other words, as Chris Robinson of US analysis firm Lux Research – long-time Tesla watchers and contributors to Energy Storage News – says, the success of the Gigafactory is closely tied with the Model 3.

“Tesla’s decision to build the Gigafactory was driven by anticipated demand of the Model 3, so it is certainly important for the Model 3 to sell in high numbers,” Robinson said.

“The company is targeting sales of 500,000 units of sales in 2020 – it is worth noting that selling that many EVs in one year would require the entire global supply of batteries produced in 2015…Ultimately, Tesla is claiming that it can reduce battery costs by 30% through economies of scale, but this will only be achievable if the company can sell the Model 3 in large numbers by the end of the decade.”

In other words, demand for the Model 3 is likely to drive a lot of what Tesla does (no pun intended), more so than demand for the residential Powerwall or commercial Powerpack batteries, with regards to the Gigafactory.

The renewables-powered Gigafactory will make Tesla one of the bigbest manufacturers of lithium-ion battery packs in the world. Image: Tesla.
Modular ramp-up is key

Elon Musk admitted at the launch that getting sales to 500,000 units would not be easy, while Robinson’s colleague Dean Frankel pointed out in a specially timed Lux podcast that Tesla will need to pay for a “tremendous amount” of electricity to charge customers’ EVs for free on its charger and supercharger networks and that questions remain over where that will come from.

Tesla is often lauded for its forward-thinking approach – for example, releasing its IP into the public domain and bringing its premium quality design to the mass market with Model 3. However, the best way that Tesla can help accelerate the sustainable energy transition, at least until the policy and regulatory space enables greater utilisation and demand for solar-plus-storage around the world, will be if the Model 3 and its later successors follow through on the early enthusiasm they’ve been met with and generate high-volume sales.

Chris Robinson says that it isn’t all black and white either though – the Gigafactory’s ramping up can to some extent be paced to meet demand.

“The Gigafactory will be built in modular fashion. That is, not all of the 35GWh will come online at once. If Tesla can be flexible in scaling up the Gigafactory as demand increases, then it can keep costs low without underutilisation, but ultimately it needs high sales to drive battery demand and achieve cost reductions through economies of scale.”

Ultimately, as Frankel says, Tesla’s acceleration of clean energy adoption is based on its success in the market, not just through its green or altruistic philosophies, referring to the strides the company has already made with the Roadster, Model S and Model X cars.

“I think that Tesla is serious when they say they want to be a force for accelerating the electric vehicle space but the biggest way they did that was not opening up their IP, it was by making a car that sold 100,000 units.”