We have just heard that the LFP, or iron based, battery pack is soon going to be available
to customers in the US. Everything is not entirely clear and there are a few assumptions
being thrown around, but with all the information we have, I think we can try and grasp what
is happening, and draw several other inferences as to what it could mean.
Customers who have ordered a Model 3 Standard Range, presumably only ones coming from the
Fremont factory have received this email. Saying they are being contacted because they
now have an opportunity to receive their car sooner, rather than waiting until the end
of the year. Tesla are open and honest about the range
the new version now has, at 253 miles, which is slightly fewer miles of range than the
current standard range at 263 miles.
However, like I have said in the past, due to iron being so much durable than nickel,
you can charge these fully. And Elon has also commented on this, and says that iron can
be charged to 100% compared to nickel at 90%. So these new batteries lose 4% of their range,
but they gain 11% in charge capacity. So when you put it like that, they do offer more charge
for every day driving, and it's only on the rare occasion that most drivers need the extra
10 miles of range.
Elon's tweet is to comfort and reassure any customers that they are trying to offer the
same experience as the nickel version, aka 2170 batteries. And he even says he would
personally opt for the iron pack. Which is great to hear, as it means Elon also thinks
LFP is the way to go.
So customers have the option to receive a 2170 Model 3 standard range at the end of
the year, or an LFP version much sooner. They will be the same price. I would say that Tesla
will without a doubt phase out the 2170 standard range version once all the customers who did
order the 2170 version have been exhausted. However, saying that, it would appear Tesla
are still offering the 2170 version on their web site, as it still has the 263 mile range
version. The LFP version also happens to already use a structural battery pack too.
And of course I have gone over all the advantages of LFP batteries many times in the past, and
been vocal about how much better they are, mainly due to safety - being less prone to
fire, the fact they cost so much cheaper - due to iron being so much more abundant, and less
battery degradation - due to iron being more durable.
The new LFP version will also weigh slightly more, due to the iron being more dense, so
the LFP verisons possibly don't handle quite so well due to the fact they are heavier,
but they are less prone to fire, and can be charged fully. So they both have positives
and negatives.
Some people are saying that this is actually the made in china model 3 being offered in
the US, and shipped from Shanghai where they are already using LFP battery packs, but I
find this very unlikely, its a lot easier just to ship over the batteries, or actual
battery pack, and far more likely considering they can assemble them in Fremont anyway.
I think Tesla are going to phase out all nickel based batteries as soon as they can, and move
over to LFP wherever possible. They are far more abundant and cost a lot less. CATL are
ramping up significantly, and will have plenty available. The 2170s form batteries will have
a limited life once the 4680s are in sufficient supply.
In addition to that Tesla are going to have their own LFP batteries perhaps sometime next
year, which will be more energy dense than the batteries Tesla are sourcing from CATL
in China, and cost significantly less. As some of you saw I made a video on just how
important Tesla's LFP batteries are. That doesn't mean Tesla will stop buying CATL's
LFP batteries either, as Tesla can incorporate any excess LFP batteries into their energy
storage business. When using LFP batteries the prices will cost significantly less, and
thus give a much better profit margin, which is what that business needs, as it currently
makes losses every quarter. In the future LFP batteries will also be used in Tesla's
power walls.
What other inferences can we draw from this? Well Tesla are trying to save as many 2170
batteries as they can for Texas and Berlin, as it would appear there will not be sufficient
4680 battery supply to cater to the Model Ys coming off those lines. And we have already
been told that 2170s will likely be required as a back up until then. Transitioning the
standard range to LFP will free up some more 2170s for Tesla to use in these factories.
The Model 3 standard range is the largest consuming model variant of 2170 batteries,
so from a business stand point, this makes sense in a lot of areas. This will increase
Tesla's margin on the Model 3 standard range in Fremont by a few thousand dollars too.
The 2170s will only be used in performance and long range versions only.
And yes, that's right I did call it. It seemed inevitable, as LFP is so much more suitable
for the application. On the other hand, I say a lot of things that could happen, so
the chances some of them do come into fruition. I still think Tesla will manage to create
a Model Y version using LFP batteries that has at least 300 miles of range when they
roll out their own LFP batteries. Due to the advances we saw on battery day being implemented
into LFP batteries. Namely tab-less design, silicon in the anode, and dry battery electrode
process.
300 miles should be ample range for nearly every driver, especially when these charging
networks are expanded. And this being LFP you can charge from 100% to 0% without severely
degrading the battery. I have never in my life owned a car with that much range. The
most fuel efficient car I ever owned did 280 miles, which was a BMW 328 coupe. On the other
hand, it might have something to do with the way I drive. Either way, I never ran out of
gas, and it's not like I was able to fill up at home, compared to charging at home.
But if you wanted a long range version that might be around 370 miles, then it would require
4680 batteries, so the cost could be quite a bit extra. 300 miles feels like the sweet
spot as far as range and price are concerned.
If using LFP batteries in the Model 3 in Fremont means that Tesla can deliver vehicles that
much sooner, then it may also add more to the likelihood Tesla have increased their
production rate in Shanghai, as they are rumored to have reached 1,000 units a day for Model
Y, nearly double capacity. Although I am also hearing some rumors that
possibly these Model Y production numbers are extra shifts that have taken away from
Model 3 production numbers. Which would imply the capacity of the Model
Y factory is significantly larger than we thought, and perhaps is close to double. Which
actually would align with a lot of theories we also hear that Shanghai has a capacity
of around 1 million. That's a bit speculative though, but it's something that will potentially
reveal itself soon. All these scenarios we discuss, eventually we do see some evidence
come to light. It would be nice to have something concrete
that we really could base some numbers on, rather than so much inferring all over the
place. But when enough inferences point to the same answer, alarm bells do start ringing.
Anyway, Tesla make about 200,000 Model 3s at Fremont a year, the majority of those are
standard range. Even if its just 120,000 standard range models a year, and the saving is $3,000
per vehicle using LFP, then thats $360 million extra gross profit. And the there is perhaps
a minimal one off cost of restructuring the lines, like we saw when China moved over to
LFP, but essentially it all goes to net profit, after tax. Which leaves $250 million or so,
at a current p/e ratio of 330, adds $82 billion on to the stock price. Those numbers are a
little rough, and may be out by more than a whole standard deviation, but either way,
you get the idea.
And bear in mind we are still at a small scale here, at least compared to when these new
factories get going, so just imagine the profit margins when Tesla can go from 4680 batteries
to LFP batteries. And when it's Telsa's LFP batteries not CATL's. To give you some idea
I think Tesla manage to get their 4680 batteries produce cheaper than CATL's LFP.
Of course as usual the market will be oblivious about this until perhaps Q4 when they see
the increase in Tesla's profit margins.
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