Elon Musk has said that Tesla is likely to build a compact electric car “within the next five years”. This announcement comes at a time when the company is still struggling to keep its production deadlines for the Model 3. However, this late-2022 rival to Volkswagen’s upcoming I.D. electric car is probably key to Tesla fully establishing itself as a global car manufacturer in the long term.
The compact Tesla electric is scheduled to be made in the brand's new facility in Shanghai – which was confirmed by the local government, last month – alongside the forthcoming Model Y crossover. The factory’s production capacity of 5,00,000 cars per year suggests that Tesla expects both models to have significant market potential.
Tesla will arrive relatively late to the compact EV game, though. Volkswagen plans to start the factory roll-out of the I.D. Electric in 2020. Tesla will expect to have a significant competitive advantage – the lower cost of its home-grown battery packs.
TESLA'S UPPER HAND
Tesla, along with partner Panasonic, is convinced that the brand has an important lead over its opposition when it comes to the cost of producing batteries for its line-up. In the world of EV manufacturing, this is the main issue that car makers around the globe are struggling to address. Here's an example using Tesla and Volkswagen as a case study:
When the I.D. hatchback goes on sale, its battery packs will costing about €200 (around Rs 16,000) per kWh. The entry-level Volkswagen is expected to have a 60kWh battery, resulting in a pack that could cost as much as €12,000 (Rs 9.5 lakh) per car – a significant sum compared to the factory cost of conventional combustion engines with an automatic gearbox. Meanwhile, research by Bloomberg New Energy Finance indicates that mainstream battery-makers will hit the magic €100 (around Rs 8,000) per kWh by 2025. This price point is key – it is the price point at which industry experts believe will really get the ball rolling on the EV revolution. Tesla and Panasonic are expected to reach €100 per kWh by 2020. So a Golf-sized Tesla launched in end-2022 could potentially have a €70-per-kWh battery (around Rs 5,000) by that time, allowing for a production cost of €4,200 (around Rs 3 lakh) for a 60kWh battery pack.
If these medium-term projections prove to be accurate, then Musk has good reason to be optimistic about Tesla offering a significant price advantage over mass makers within his proclaimed five-year time frame.
Tesla's new ‘flex circuit’ technology is another potential technical advantage the carmaker has over its competition. Expected first in the Model Y crossover, flex circuits are extremely thin conductive elements sandwiched between very thin flexible plastic mouldings which could use a wiring loom length of just 100m. This is in marked contrast to the current Model X, which has around 3km of wiring. Even the Model 3 has 1.5km of wiring. Applying this new technology to the compact Tesla would give the model another significant factory-cost advantage on its 2022 launch.
Nevertheless, before Tesla can get to manufacture this promising hatchback EV, the company needs to finally nail down the Model 3 production process, and prosper. The struggle of the Fremont factory to consistently reach the initial ‘take-off’ speed of 5,000 units of the Model 3 every week by June 2018 has rattled some investors.
TESLA IN SHANGHAI
Building the new compact Tesla at a brand-new Chinese facility is a sensible call – this is where an affordable EV would have most market traction. China is already the largest market for EVs, steered strongly by the national and local governments to address the pollution in Chinese cities.
With the registration of Tesla (Shanghai) Co Ltd back in May, this new factory is likely to be less of an experiment than the highly robotised Model 3 line in California. Its construction and organisation will be also be greatly aided by China’s now-world-class automotive manufacturing capabilities. Funding this plant will be a serious challenge but building a factory in China is likely to be quicker and less complex than building one in the US or in Western Europe.