Model 3 Battery Smaller Than Bolt’s; Profitability Remains Open Question

A recent conference call between an analyst, former Chevy Volt chief engineer Jon Bereisa – and Tesla – revealed the Model 3’s battery will be a little smaller than the Chevy Bolt’s, may cost less, but Tesla still might not make a profit selling it for $35,000.

All this is still up in the air, but the context for the call was to answer skepticism by UBS analyst Colin Langan who asked Bereisa to help make his points. Initially, Tesla was not on the call, but its head of investor relations did join somewhere along the way.

Bereisa, now President and CEO of Auto Lectrification, spent 35 years at GM back to the EV1 and before, and said he had doubts Tesla could profit at its $35,000 entry price.

Bereisa's expertise dates back before being the head engineer of the Chevy Volt, and includes involvement with the EV1.

Bereisa’s expertise dates back before being the head engineer of the Chevy Volt, and includes involvement with the EV1.

According to StreetInsider, Bereisa chronicled slowing progress of li-ion chemistry since 2014 and how engineering has focused on optimizing battery packs to squeak out gains in efficiency and cost.

Based on his knowledge in hand, Bereisa offered that a best-case scenario through 2025 for the cost for a completed battery pack is $133-$155/kWh.

Following a detailed breakdown of why he thought this, Bereisa said bottom line the Model 3’s factory variable cost (FVC) would bring the vehicle to $1,510 above the base $35,000 Tesla is promising.

In short, it would be dead in the water and not welcome news to a line of 400,000 and counting people who placed reservations based on this assumption.

Making matters worse for Tesla – or better for GM – Bereisa reportedly said the Bolt’s FVC would come in at $4,980 below its $37,500.

Bereisa estimated Tesla’s completed pack, assuming a similar size of 60 kWh as the nominal size for the Chevy Bolt’s pack, was $260/kWh whereas GM paid around $215/kWh thanks to more favorable supplier pricing from LG Chem.

Tesla Dials In

At this point, head of Tesla investor relations Jeff Evanson called in to the conference discussion to correct some of Bereisa’s assertions.

One correction was the Model 3 would be only partially aluminum, not all aluminum, cutting costs assumed by Bereisa. Another was Tesla’s cost for a completed battery was already less than $190/kWh, more than $70/kWh less than Bereisa estimated, $25/kWh cheaper than he estimated GM was paying.

Hearing this, Bereisa reportedly expressed skepticism Tesla is paying this little, saying raw materials cost prior to assembly into completed packs is about $160/kWh assuming the supplier makes a margin of 40 percent.

Rear-wheel-drive Model S battery and chassis.

Rear-wheel-drive Model S battery and chassis.

And if Tesla’s pack is smaller than 60 kWh, it cannot be much smaller, reportedly said Bereisa, who said 55 kWh was a minimum to achieve 200 miles range, and Tesla is promising a minimum of 215.

Analyst Langan also chimed in saying he too doubted Tesla was paying less than $190/kWh for a completed Model S pack.

Langan reportedly cited discussions with other experts, and that FVC excludes operating costs like depreciation, engineering, research, development, overhead, selling, general and administrative expenses, and more.

FVC (factory variable costs) include only parts, material, and assembly labor per car, and so Evanson’s assertion of its costs left Langan in doubt.

The analyst concluded that although Evanson’s assertions could mean the price of a Model 3 might exceed FVCs by $4,500 more or less, little room would remain for operating profit after all other costs Tesla will have to bear.

Carmakers usually need a 45-55 percent markup above FVC to break even, and thus even assuming Tesla is paying just $190/kWh, the analyst figures it needs to actually sell the Model 3 for $45,000-$48,000 to break even.

More to See

Just as armchair pundits are trying to see into the future, so are those much closer to making it happen, and still there is disagreement.

Undoubtedly more will need to be disclosed, but as has been an ongoing case with skeptical financial analysts, and others, Tesla maintains it can deliver what it promises and doubt has been expressed.

Chevy Bolt. GM has not said it would offer larger battery packs than the one 60-kWh size, and AWD has also not been discussed.

Chevy Bolt. GM has not said it would offer larger battery packs than the one 60-kWh size, and AWD has also not been discussed.

As for the battery size issue, GM’s engineers recently said the nominal size of the Bolt’s pack is 60 kWh, but the precise number is a secret.

GM has also not announced exactly what the EPA-rated range for the Bolt’s 60-kWh battery will be. It has consistently said more than 200 miles but how much more is unknown. One journalist at the Las Vegas media drive in January said Chevy personnel told him it was as much as 235 miles, but this was never officially confirmed.

Without specifying how much smaller, Evanson said the Model 3’s pack has less capacity than what is to come in the Bolt.

Tesla has promised at least 215 miles range, so if it aims to do that, the understatement here might be it will need to find efficiencies.

Incidentally, one would assume this range is for the rear-wheel drive Model 3, as 215 miles is promised at entry level, but noteworthy also is Tesla has found improved efficiency in its AWD versions to date.

Model 3

Other factors contributing to an electric car’s range include curb weight, system efficiencies, coefficient of drag, tire friction, percentage of the battery pack used, and more.

GM has said most of the Bolt’s battery will be used, implying it needs 60 kWh for a car that may weigh in the ballpark, but be less aerodynamically efficient. Undisclosed is the percentage of this 60 it will hold in reserve to prevent cells from going bad, but this is typically at least 5 percent, more likely closer to 10 percent or so.

Tesla CEO Elon Musk has said Tesla’s engineers are trying to beat the class-leading 0.24 coefficient of drag enjoyed by the Model S, potentially getting it as low as 0.21. At least clear is the Model 3 will have less frontal area than Model S being not as wide.

A Model 3 is also expected to weigh several hundreds of pounds less than a Model S, and Tesla’s former RWD 60-kWh version was EPA rated for 208 miles range.

If one wanted to guess the pack size needed for the Model 3, there are so many variables and assumptions not specifically known that it is still hard to speculate. Tesla has not even said what its real baseline EV range target is other than it is at least 215.

Add this to the list of unknowns, as people scan for more information on the approaching horizon.

StreetInsider