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The gigafactory, which will eventually turn out batteries for 500,000 vehicles, should cut their cost by another 30%, according to Tesla (see chart). Mr Musk reckons that two-thirds of that saving will come from scale alone—the new factory will double the world’s lithium-battery output—with the rest down to improved manufacturing technology. If Tesla makes good on its promise, electric motoring could finally take off. Sanford C. Bernstein, a research firm, reckons that when costs drop below $200 a kWh, battery-powered cars start to become competitive with conventional ones without subsidies. The gigafactory could bring Tesla close to that.

http://www.economist.com/news/business/21604174-better-power-packs-will-open-road-electric-vehicles-assault-batteries

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Another view on the Tesla battery cost saving claims

"More than 75% of battery costs are in raw materials alone. So right off the bat, it becomes very difficult to see where you can get a 30% cost savings."

http://www.businessinsider.com/elon-musk-bet-on-the-gigafactory-2014-5
Frankly, I don't believe that a $500 1kwh lithium battery has $375 of raw materials in it.

I found this article:

http://www.tms.org/pubs/journals/jom/0809/daniel-0809.html

Which pegs material costs (specific to 18650 cells) as $1.28 in a $1.70 cell cost. That's 75%. HOWEVER, they include material -processing- in the material cost, and material processing is one of the big areas Tesla will save money by using very large scale and high efficiency. It's also pretty energy intensive, so a nice big bank of solar panels will cut costs too, in the long term.
 

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HOWEVER, they include material -processing- in the material cost, and material processing is one of the big areas Tesla will save money by using very large scale and high efficiency. It's also pretty energy intensive, so a nice big bank of solar panels will cut costs too, in the long term.
I suspect, but cant directly state how, that the capital expenditure on Solar sourcing vast PV will come via Solar City which in turn uses some interesting funding models provided by a US Govt FITs type payment structure that opens the way to 3rd party finance on the capital required.

Also, if its to be located in some desert in Texas / Nevada then there is abundant solar thermal energy that could be used for industrial scale process heat and thermal collectors (concentrated or otherwise) can be 65-75% efficient compared to PV at 15-20%. And then there's the fact that potential host state(s) are going out of their way to make the Gigafactory installation super cheap (relatively speaking).


All plus points for Tesla ..
 

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Even if the raw materials are 75% of the current cost, that will reduce over time. Its not that long ago that food accounted for 30% of average wages! now it's around 10%. This certainly isn't all through wage rises, a lot will be down to production efficiencies, and sheer volume. When prices are high, people pile in to make some good money at it, but you can't turn it all off when it goes quiet, so they have to cope with lower prices when the demand outstrips the supply.
Plus, let's face it, they are going to be buying lots of raw material, so that's going to have a decent amount of bargaining power. Especially with the Solar City storage/backup units thrown into the equation :)
 
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