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Monday, April 17, 2017

Model 3: One Battery Pack Justification

Tesla 2170 Battery Cells
The "final" unveiling of the Tesla Model 3 is planned for July of this year. We will finally get to see all the details. This is when the design studio is likely to open too. When it does open, there will be many decisions to make. What color paint, cloth or leather... We'll get to see all the prices for upgrades. Do you want dual motor all-wheel drive? If so, you'll have to wait an additional 6 to 9 months to get your car as all the initial vehicles will be rear wheel drive only. 

Making only rear wheel drive initially is one of many things that Tesla is doing to streamline the introduction of the Model 3. Tesla is trying to make the cars as fast as they possibly can to meet the huge number of pre-orders. They are going for the "keep it simple" method; this means there will be fewer options initially.

As part of this, there will not be a performance version of the car initially. This will come later, soon after or with the dual motor option.

Another step that Tesla is taking to speed up Model 3 production is making inventory cars. These are not built to any one person's specifications. Instead, they will select the popular options and colors and build these cars for their stock. If you select an inventory car, instead of placing a custom order, you may be able to receive your car sooner.

How will these efforts to speed up production impact the battery pack?

The battery pack options are not specifically known, but we have some clues. There are likely to be two capacity options. Elon Musk tweeted that 75 kWh was the largest size that will currently fit in the Model 3. Additionally, Tesla’s Vice-President of Investor Relations, Jeff Evanson, has said that the small pack size will be less than 60 kWh. Taken together, these two statements have led many to believe that the large pack will be 70 or 75 kWh and the smaller pack will be 55 or 60 kWh.

Considering that Tesla is trying to accelerate production as much as they possibly can, it might make sense to only produce the larger pack. We have seen several examples of Tesla selling software limited battery packs in the past. They did this for the 40 kWh Model S at its launch and more recently with the 60 kWh Model S. It is possible that they do it again with the initial roll-out of the Model 3. 

A software limited pack will simplify Model 3 assembly and give Tesla a future revenue stream.


Not only would a single physical pack simplify assembly, it would give Tesla a future "in app purchase" revenue stream. Many first time EV buyers will be taking delivery of these Model 3s. One thing that we know is that once people start driving an EV, many of them fall irrationally in love with the experience. And that will mean they will be driving these cars on road trips and vacations. And eventually, many of them will want more range. If the pack is software limited, they'll be able to login to their Tesla account, pay for the upgrade, and bingo - they can drive farther. Plus, the next time they are in the service center, their car gets rebadged.

If Tesla were to do this, there is a risk. If people don't upgrade, then they have put 15 or 20kWh of batteries in thousands of cars that could have otherwise been used to sell more cars (or PowerWalls), but Tesla has never been afraid of risk. This move will make the buyers happy because they will have an upgrade path and it will potentially make Tesla more money when people upgrade. It's a win-win and I hope that Tesla does it.

Model S battery capacity upgrade

If Tesla goes this direction, how much would it cost to upgrade from a 60 to a 75 (assuming those are the pack size options)? Upgrading the Model S 60 to 75 was initially $9,500; soon after the price reduced to $6500, and on the day this article was published (April 17th, 2017), Tesla reduced the price to a mere $2000. And this was before Tesla started using the more affordable 2170 cells. This further supports the idea that they are considering a single pack for the Model 3 and they are bringing the Model S upgrade prices in line. This is $133 per kWh and would make the price of a 15kWh upgrade about $2000 and a 20 kWh upgrade about $2500. This is an affordable upgrade for many. And it would be the perfect way to spend the 7500 additional dollars in your tax return. I hope we'll all find out in July (or sooner).