Everyone is looking at the EV industry. Oh wow it's going to be huge. In case you didn't realize,
EVs will be a much bigger industry than ICE, and I am not even including the AV industry.
These days there really is a growing variety of different EVs available on the market. Many
legacy autos now have as many electric models on offer as Tesla. But the EV industry is a disguise
for the real industry here. Not quite a trojan horse but still hidden inside all these cars. The
EV industry is distracting the true product, with their flashy ads, and celebrity endorsed vehicles
of the future, or EV start ups reaching ridiculous valuations. But perhaps this not the real industry
to be focusing on for the time being. Perhaps its one that is more scarce, with a lot more
potential remaining in improving technology and lowering costs. We could even call it the new oil.
I am of course referring to the battery industry. We are seeing so many new battery fabs soon
opening up, especially for all the legacy auto companies. Except all of these fabs are for nickel
batteries. Therefore they will all be very battery constrained, they are aiming for something similar
to Tesla's giga nevada, similar manufacturing processes like the wet slurry process
for the electrode preparation, and batteries to a similar energy density, and possibly cost,
as Tesla's Panasonic 2170 batteries, basically I think this is the stage that legacy EVs are.
Giga Nevada has a capacity of something like 35 GWh a year,
even as large as it is. If it was completed, it believe it would have been the largest building
in the world by footprint. It would have still been about 50% larger footprint than giga Texas.
That's how inefficient that battery process was, hence why Tesla have still had to pay
so much per vehicle for batteries, if they wanted a long range.
Despite giga nevada's size the battery capacity is only about 35 GWh annually, although I believe
Tesla have improved that somewhat, and are still planning on increasing output this year too.
But the legacy autos are not even at this stage yet, they still haven't even finished
their giga nevada equivalent fabs, to build their batteries that still require cobalt.
But they have to start somewhere, and they need a lot of batteries,
and they also need to get their costs of batteries down significantly too.
However, LFP appears to be a lot easier to scale up, than nickel batteries. And I think
there is a good chance that Tesla is somewhat of a monopsony to CATL, in that Tesla will buy
the majority of batteries CATL can make. Remember, any spare batteries Tesla get can go into energy,
and likely profitable. This CATL deal is as much a benefit to CATL as it is Tesla.
CATL can feel confident in ramping up their production and expanding more factories,
with the knowledge that Tesla will keep buying everything they can make. Tesla have so much
demand. If CATL can supply batteries, and Tesla can still make a profit, it's just simply business
Tesla would have not otherwise had. It is not cannibalizing any other part of the business.
On top of that we are still in very, very early days, we need something like 100 times more
batteries still. Can you imagine all that money that will go into R & D for LFP over that time.
When I say LFP, throughout this video, I could also mean sodium iron batteries too.
Who knows, maybe even Quantumscape will eventually come out with a lightweight,
power dense solid state battery, and eventually be able to ramp up to volume production perhaps
sometime next decade. That's still a long way away. The thing that matters is Elon
has kick-started this revolutionary new battery industry. The technologies will arrive.
Of course by any stage it would have taken to ramp up any other revolutionary new battery,
Tesla would have already dominated all their markets. But perhaps solid state batteries might
be suitable for the likes of electric planes. Tesla doesn't have to do it all. Elon just
wanted to kick start the industry, rebalancing the scales, and make renewable and electric
not only feasible, but the lowest forms of energy and transport. Tesla want the world to transition,
not Tesla transition the world. There is so much work to be done it would be absurd to
think Tesla can do it alone. It's an absolutely enormous industry, transitioning the entire energy
and transport industries. It's insane if you really think about it. Tesla are just looking
at it, and thinking, what could have the most impact. Whilst also doing it in a way to affect
economies and industries as little as possible. In fact hopefully very much the opposite.
But out of all the proven battery technology we have today, there is one that seems to
be the best for energy storage, and potentially the best for vehicles too.
I am of course referring to LFP. Unfortunately for vehicles, it's energy density is not quite
there yet, although Tesla do an extremely good job getting a decent range out of them still.
However, it won't take very much of an increase in energy density to achieve just a 10% range
increase. We are at the stage already where 10% is about all that we need to make a real
difference. It would mean that Tesla could get an LFP Model 3 to a range of 300 miles.
I would expect, and hope that over even just the next year,
that CATL alone make some break throughs, and possibly
with some of Tesla's help even. Enough of an improvement that we could see these results.
CATL needs tesla to grow, no one else can come close to handling 100s of GWh of batteries, yet
CATL seem like they could scale up that high, it's basically all going to be for Tesla, especially
once the chip shortage is sorted. CATL wants to grow, and the Chinese government want CATL
to grow, therefore the Chinese government want Tesla to grow too. It all works out very well.
Now everyone seems to be talking about LFP batteries,
I was saying all last year, they are going to be a key ingredient of EVs, so I am not surprised.
Of course increased battery efficiencies, and lower production costs, means that before long,
for example Tesla's Model 3 standard range, could have 300 miles of range, and yet the
batteries may cost $2,000 less to produce. We have gone from a vehicle with about 270 miles,
to 300 miles. That adds significantly more value, which in turn increases demand,
or Tesla can raise prices. Whilst at the same time, Tesla makes an additional $2,000
per vehicle. That could be almost an additional 4% increase in gross profit margin, or more if
the prices were raised too. Batteries are still a key element in getting costs down for EVs.
LFP is a huge leap in that process, if you can get the batteries and vehicles efficient enough.
But guess what, I hope you are sitting down for this, as it may surprise you, that these
batteries are only going to continually come down in cost, improve in production efficiency,
increase in energy density, and become far more abundant. All battery technology will do this.
However, there will come a point when the improvements start to become more diminishing.
For example if you had a 60 kWh battery pack, and you got the price down from $100 to $50, then that
takes the battery pack from $6,000 to $3,000. Or perhaps 20% of the cost of the vehicle, down to
11%. If you manged to get the price of the battery down a further 50%, to $1500, then that would take
it down to about 6% cost of the car. You see the difference the first time the battery cost halved,
reduced the cost 9%, however, the next time only 5%. In other words, there will come a point
where the cost of the battery well be a much lower relative cost of the car, and it obviously becomes
harder to get the costs down the further you go. But eventually, cheap enough, is cheap enough. If
battery packs are down to a few thousand dollars, and producing decent range, then that's huge.
But the entire car needs to be designed around utilizing this battery as efficient as possible.
$3,000 for an LFP battery pack should be sufficient and achievable,
by perhaps 2025, and most likely by Tesla. As we know, this LFP patent is opening up,
and it means that the entire world can add their innovation, research, development,
capital, experience, resources, etc into LFP technology. Rather than it solely
being one country. No one seems to be thinking about this. This is what happens
when a barriers to entry to technologies are removed, such as regulation, or patents.
I have been mentioning this before, but the more I think about it, the more it seems inevitable.
I think the likes of LG, panasonic, samsung, SKI,
sony, any battery company, should be getting into to LFP batteries. It would appear they
are simpler than nickel batteries. I would hope that they are already researching them.
Most of them would most likely opt for prismatic form factor, as its simpler.
The fact there will be more competition from more nations, means the level of LFP innovation
should really start to move. This is exciting, and will increase the rate of the industry.
Then when say LG or someone has hit break-throughs that can get legacy autos ranges of above 250
miles, then there will be some serious investing further. Currently most legacy autos don't seem
to want to offer too low a range for their EVs. Namely because the EVs are expensive,
and if your are paying that much you want a decent range. But if legacy can offer 250 miles of range,
and save half the cost on their battery pack, then that is huge for them.
Probably a saving of about $10,000 per battery pack. It may take them until 2025
until they reach this level at volume production. Advances in power trains would also help this.
EVs are highly profitable, and eventually some legacy autos will also be able to perhaps profit
a further $1,000 a year from subscription services too. If they had 5 million vehicles on the road,
that's $5 billion profit. Which is still a reasonable amount for a legacy auto.
But if they can net profit $3,000 per vehicle, and sell 2 million EVs a year,
then that's another $6 billion profit, which is still pretty good. Why is it
so good? Because it's an EV company. That means the p/e ratio has gone from 5, to 25.
Of course this only applies to any legacy autos do actually make the transition.
Of course we really look forward to seeing Tesla's own LFP,
which some people still seem to think, might possibly be 4680. It won't be,
but I really do hope a new battery is announced this year. It probably wont do
a lot for the stock, but will give us a much better idea of the future of the industry.
Anyway, LFP has a great future, and it only needs to improve slightly,
to become that much more suitable for more applications, making EVs that much lower cost.