Tesla wants to put low-cost batteries in China-made Model 3

The price of the Model 3 made at Tesla’s Shanghai could be about to be lowered even further, with confirmation that Tesla is seeking approval to use low-cost, no-cobalt batteries.

While the world waits for Tesla to reveal its EV battery developments in a “Battery Day” that is now on hold until June and beyond and which will likely occur over two events, any tidbit about what the Californian car maker is doing with regards to batteries in its electric cars is big news.

Tesla is set to lower the cost of making electric cars by using cheaper batteries, and a deal cut with Chinese battery maker CATL will likely involve lithium iron phosphate technology which does not use expensive cobalt, and may also do away with modules to lessen the cost of making them.

According to Reuters, CATL’s LFP battery packs will cost $US80/kWH, 20% less than the amount industry analysts  say will bring electric vehicle prices on par with petrol and diesel vehicles.

As The Driven reported on Friday, CATL boss Zeng Yuqun told the China Daily (Hong Kong edition) that CATL was making progress on its LFP chemistry, as the China Association of Automobile Manufacturers (CAAM) reported that a Chinese Ministry of Industry and Information Technology (MIIT) catalogue showed that Tesla was planning to use LFP batteries in locally made Model 3 vehicles.

The document cited by CAAM was pulled from the media report, but Reuters has now confirmed that a document submitted to the MIIT does indeed show that Tesla is requesting approval to use the low-cost batteries in China.

This ties in nicely with recent Tesla developments for a few reasons.

For a start, it means that Tesla’s intention to use LFP batteries is well and truly confirmed. It also, as mentioned, means that Tesla may be able to further reduce the price of its locally made Standard Range Plus Model 3 which it dropped the price of in April to bring in line with China subsidies restrictions.

As Musk said at the company’s first quarter earnings call for 2020 in April, “Localised production in China and in Europe will bring the cost down, making our products even more competitive over time.”

Musk has repeatedly noted that need to use locally made parts in order to bring down the price of electric vehicles. And although Musk said that the price of the China-made Model 3 was dropping, Tesla CFO Zachary Kirkhorn also noted there were opportunities to bring it down further.

“There’s still significant opportunity left to take costs out. So fixed cost absorption from higher production volumes, which are occurring in Q2 and will occur through the rest of the year were not fully localized on the supply chain yet,” said Kirkhorn.

“And so while a lot of the supply chain is localized, it’s not complete, and there’s additional opportunities there.”

Tesla opened the doors of its Shanghai factory in the final days of 2019, and is also expanding its floorspace to include Model Y production. At Tesla’s first quarter earnings call Musk also added that Tesla will also make the Long Range and Performance variant of the Model 3 in China.

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