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Cheap batteries will make the Electric vehicles Tesla Model S profitable

The $57,000 electric Model S, which uses cells similar to those in laptops, is designed to make money for Palo Alto, California-based Tesla at 20,000 annual deliveries, Chief Technology Officer J.B. Straubel said in an interview. Nissan chief executive officer Carlos Ghosn has said combined battery-car sales for Nissan and affiliate Renault SA may need to reach 500,000 electric vehicles a year to be profitable without government aid.

Nissan’s choice of a larger type of lithium-ion battery means “they will have a cost challenge that will be more difficult to solve,” Straubel said Dec. 29. The $57,500 Model S sedan is designed to make money for Tesla at 20,000 annual deliveries. Nissan CEO Carlos Ghosn said that combined electric car sales for Nissan and affiliate Renault SA may need to reach 500,000 annually to be profitable without any government aid. “It will require a lot higher volume before they really get to a cost point that is internally sustainable.”

Tesla, which has yet to post an annual profit, has delivered $109,000 rechargeable Roadsters since 2008, powered by thousands of small lithium-ion cells similar to those used in portable computers. The Silicon Valley startup says such cells, supplied by Panasonic Corp. and other manufacturers, will remain more cost-effective for the foreseeable future than the larger lithium batteries in the Leaf and General Motors Co.’s $41,000 plug-in Volt, which both went on sale this month.

Tesla’s lithium ion batteries packs may cost as little as $200 per kilowatt hour, compared with about $700 to $800 per kilowatt hour for so-called large-form cell lithium-ion packs, Martin Eberhard, a Tesla founder and former chief executive, said in an interview last month.

Tesla’s Straubel conceded the Model S’s higher price will make it easier to turn a profit with fewer deliveries after it goes on sale in 2012. Still, cheaper batteries are the main reason, he said.

Tesla’s challenge is to ensure a high level of quality control in its battery pack and assembly processes as it tries to expand from supplying about 1,000 Roadsters a year to making 20,000 or more of the Model S, said Brett Smith, who specializes in alternative propulsion vehicles at the Center for Automotive Research in Ann Arbor, Michigan.

“There’s a method to their madness,” Smith said. “Tesla is using cells that, while not exactly the same as those in laptops, can be made on existing lines that already mass-produce them.” As a result, Tesla didn’t have to spend as much for battery research and development and lithium-ion cell production, Smith said. “Especially for a small manufacturer, there’s a logic to what they’re doing,” Smith said.

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