Let's keep dissecting this, as one of my viewers aptly named it,
treasure trove of information in the Q2 earnings call. I feel like Tesla and Elon
have really outlined so much of what is happening there. I think the questions are getting better,
you know aside from people asking when the Cybertruck will launched.
This is now my third
video about this call, and we are still only about half way through it. We left off during
Pierre's questions, his next question was about 50% growth, and if it was to continue,
how much of Tesla's supply chain is secured, or can grow, in order to meet these targets,
lithium refining and what difficulties do they anticipate. How much is secured today
and how fast can they improve it. Pierre asking in the region of about 10 years in the future.
Elon talks about the constraints with lithium. There is plenty of lithium,
as it's one of the most common elements on earth, and each Tesla battery supposedly only
uses as little as 5 kg of lithium, so it's not even that much. But it needs to be refined to
ultra high purity battery grade quality lithium hydroxide and lithium carbonate,
in order to be high quality enough for EV batteries. But this is quite difficult
and requires massive amount of machinery, which makes it a hard thing to scale.
Therefore the constraint ends up becoming the processes of refining the lithium to reach this
quality. Which is all happening in China. This is not new information, and in the past Elon
has been vocal about the opportunity for any entrepreneur who wants an exceptional ROI, and
Elon repeats this again, explaining that lithium processing has software like margins right now.
Elon also says it's quite difficult to produce the anode and cathode. And guesses that 2/3 of
batteries will be iron-phosphate, or iron phosphate with some manganese. Firstly he
says 2/3 of batteries, I assume he means for EVs, not all batteries, as energy storage would
be 50% and likely all iron-phosphate cathodes. As some quick math will tell us that otherwise
that would mean only 1/6 of EVs will be iron-phosphate, which is not very likely.
Also I would like to point out each time, that Elon says iron-phosphate,
he doesn't say LFP. What's the difference? Well the L in LFP is lithium. We know it's possible
to make iron-phosphate cells with sodium, which is even more abundant and possibly easier to refine.
I have been making out for sometime
how great LFP is for all sorts of reasons. But it's not really LFP that I meant per se, it was
more the iron cathode. It's just cheaper, easier and safer to manufacturer, and degrades very
slowly. It's perfect for energy storage. But it does have that lithium holding it back. The iron
is so abundant it has so much potential, but the scarcity of the lithium will hold it back, so I
think Tesla's LFP cells, or iron cells, that they end up making in-house will not be lithium based.
If lithium is the constraint to scaling to the extreme.
Yes, Elon says they will get into the lithium refining business if necessary, but reluctantly,
they have better things to do, and this doesn't require Tesla level engineering,
i.e. no opportunity cost if 3rd parties can expanding the refining process.
But to the extreme? To the extreme that Tesla is talking, I think they need to by-pass lithium.
It's beyond my knowledge of chemistry, but perhaps even some of the other alkali metals could be used
like potassium. It is these metals that are used because their outer electron is more,
perhaps this isn't quite the right scientific term, but more loosely, than other elements.
Therefore the ions can pass through the electrolyte or electrode at ease.
Elon also says,
or a combination of iron phosphate and manganese.
Now I was under the impression that when Elon used to talk about manganese as a cathode,
he was referring to a ternary battery, which are batteries that use a combination
of 3 of the following, aluminium, nickel, manganese or cobalt,
NMCA. But it sounds like Elon is looking at manganese and iron cathode.
Elon has mentioned in the past that they are looking at manganese cathodes,
but I hadn't considered iron-phosphate manganese cells. Imagine the additional range Tesla could
achieve with manganese in the cathode with iron. Manganese is about as energy dense as nickel.
So what if Tesla works with their partners like Panasonic to help them make more 4680 cells,
and then work with CATL and BYD to make NaMnFePo, or NMFP cells.
Then imagine again,
if Tesla can also introduce silicon into the anode, with these NMFP cells.
I think we are likely beyond 300 miles of range in a Model Y with those cells.
Drew then does
actually mention the cells as LFP rather than just iron-phosphate. He brings out the point that it's
not just about more abundant materials with iron cathodes, it's also that the refining process
is that much simpler, and less capital intense. So it's not just scalable on the resource side
but also on the refining side too. Is it possible this means somewhat that the grade
of the lithium might not need to be to as high a standard as nickel cells too?
And Elon re-iterates there is plenty of lithium, it is the refining. So if it is a lot easier to
refine lithium for LFP, and lithium ends up being the constraint of battery growth,
then LFP makes sense. And hopefully also LFMP, with mangenese too to increase range.
He then goes on to say, that there is no technological break-through
required to get to renewable energy. There is no fundamental barrier, it's a question as to what
rate it can be done. Again, like I call it what is the bandwidth of the EV supply chain.
Elon talks about what concerns we might see in a
few years. He says one is the machinery to refine the critical ingredients of lithium ion cells,
being the lithium itself and the cathodes. Hence why Tesla are building a cathode factory in Texas.
Tesla are obviously well aware of these future bottlenecks, and have been talking to all their
suppliers telling them they need to expand to meet the demand. It is a big job, and it if it ends up
being the bottleneck then Tesla will get into the refining or whatever is necessary themselves. They
don't want to, it's better having Tesla engineers work on things like dry battery electrode
processes, but if they need more lithium then Tesla isn't going to let that stop them. Tesla
is a limiting factor removal company, they want to expand to the extreme, what are the limiting
factors that prevent that, then that's what Tesla has to get into, whether they want to or not.
Tesla don't want to get into mining and refining, they want to focus on manufacturing and software.
So hopefully more suppliers do open up and expand, so Tesla can concentrate more on what's important.
Elon says all
stationary storage will be iron-posphate, which is what we would expect due to it's life cycle,
safety, and cost. But after that Elon says you really just need nickel cells for long
range vehicles and aircrafts, or high energy dense applications.
Nickel just for long range. Now I would infer that Tesla's Long Range, is around 400 miles and above.
Therefore I think that he is suggesting that we should see iron phosphate batteries producing
in excess of 300 miles, likely from a Model Y. Looking back just a few years ago, that would
have been the dream, to achieve that sort of range, and energy density at such a low cost.
Now I think that that cost per kWh must be well below $50 for those cells, at the cell level.
Excluding all inflation and price rises, to compare relatively with previous costs per kWh.
This would end up meaning batteries for EVs could cost just a few thousand dollars,
and yet possibly capable of an excess of 300 miles.
Anyway, don't get too excited yet.
Like I say, Tesla is a marathon, not a sprint. The announcement from Tesla I am most looking
forward to, is their iron phosphate Battery Day presentation. But this may not be for sometime,
and then they have to get into production too. And look how long the 4680 cells have taken.
Can you imagine how long these iron phosphate cells will take?
The reason the 4680s are taking so long is all the dry electrode processes.
This is a revolutionary new technology it was insanely difficult, but Tesla are just about
there now. They won't need to learn how to do it all again. On top of that dealing with
iron phosphate cells means that the cells are simply much safer and thus easier to manufacture.
So maybe, knowing Tesla, it actually might not take anywhere near as long
as the 4680 cell. And it sounds like Elon wants to be selling a lot more iron phosphate cars
than nickel cars. So perhaps they will get around to it sooner.
I am expecting a different
form factor again for the iron phosphate cells for energy. My thoughts are that Tesla will use ideal
form factors based on application and chemistry. Energy density is not a big factory when it comes
to energy storage as these batteries are literally stationary. And that will be the all important
cell to finally get Tesla's energy storage business growing, or scaling to the extreme.
Drew goes on to say, that the limitations aren't going to be an issue in a couple of years,
he is referring more to 10 years out, when the exponential ramping
does become extreme. But they are also doing what they can to resolve it too,
like the new cathode factory in Texas. And their own lithium refining
This is more than an earnings call, they have
outlined the future of the company on this call, they have said it subtly and I think it has been
missed by many. I am still putting it together, but I think by the end of this I can calculate
a fairly good timeline for the rest of the decade, which is what I have been trying to
calculate for my 2030 price target. Anyway there is still more go through on this earning call.