Featured image: Tesla | Tesmanian
After Battery Day, ARK Invest analyzed the innovations presented by Tesla and placed them on a new cost decline curve. The firm found that, given the breakthrough in battery technology, Tesla is complying with Wright's Law. Not only is the company reducing costs by 56% per kWh but is also increasing its range by 54% thanks to vertical integration, which ARK says, has no analogs in the industry. Sam Korus/Twitter from ARK Invest talked about this in more detail.
1/ Tesla is creating and killing the electric vehicle competition.— Sam Korus (@skorusARK) September 24, 2020
Tesla’s battery day affirms Wright’s Law and spells trouble for the competition.
Sam points out that Tesla is creating and killing electric vehicle competition. Tesla's battery day affirms Wright's Law and spells trouble for the competition. Wright's Law states that for every cumulative doubling of production costs fall by a fixed percent.
Note the X-axis is cumulative kWh, not time. That is, time doesn't guarantee lower costs, increased production does.
Source: ARK Invest
In 2006, almost no one thought EVs would be able to reach price parity with gasoline-powered cars, but Tesla had a plan to stimulate demand and thus move on a cost-cutting curve as described in Wright's Law.
On an annual basis, it seems that Model S changed the cost curve, but it's actually on the same Wright's Law curve. Model S demonstrated demand for a form factor that uses orders of magnitude more batteries than an iPhone and so production of batteries ramped.
That's when Tesla created the competition. People saw price parity on the horizon. Had Tesla not made an awesome and compelling electric vehicle, battery prices may not have fallen as quickly because battery production would have been lower.
Ramping to 3TWh from today's cumulative production base is in line with Wright's Law and would lower costs by ~ 56%. This announcement is Tesla taking its destiny and the destiny of EVs into its own hands. It's not going to let the industry drive costs down. It will do so itself and others will be brought along.
Wright's Law works for vehicle production too. Tesla's vehicle and battery production ramp should drive costs low enough to make a $25,000 vehicle in three years.
Generally, prices from Wright's Law can be applied across an entire industry, but Tesla's speed of iteration and degree of verticalization make leaks and learnings harder to apply to other companies. ARK believe the auto industry will follow Wright's Law for battery cost declines, but delayed relative to Tesla.
Once Tesla releases a vehicle with the new cell, the reverse engineering race begins. Then the product needs to be scaled. Tesla doesn't need an infinite lead, just enough time to innovate again.
The firm's research already suggested Tesla was 3-4 years ahead on battery technology. This major innovation likely only further extends that lead. Ultimately, this means that other automakers may not reach price parity with gas-powered cars until later. This may put ARK's overall EV forecast in jeopardy, but has profound implications for Tesla's potential market share and profitability.
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