Tesla’s recent truck announcement set off a round of speculation regarding its price. Steve Levine, an Axios journalist who penned a whole book about battery technologies, wrote a few days ago that “experts estimate that the Semi could be $300,000.” MIT Technology Review speculated that the Semi would cost even more: $400,000.
So many tech observers and auto enthusiasts were surprised on Thursday when Tesla posted estimated prices for its Semi product. According to the company, a low-end truck with a 300-mile range will cost around $150,000, while you’ll be able to get a range of 500 miles for $180,000. A premium “Founders Series” truck will cost $200,000.
That’s more than the $120,000 cost of a typical, internal-combustion truck. But Tesla says that its truck will deliver $200,000 in fuel and maintenance cost savings over the life of the vehicle. If that’s true, paying an extra $30,000 to $60,000 for the truck would be a bargain.
Tesla is labeling these as “expected” prices, and the truck isn’t due to launch until 2019. Elon Musk has a track record of setting overly ambitious goals and blowing through deadlines. So we shouldn’t be surprised if the first deliveries slip into 2020 and a truck with 500 miles of range costs a bit more than $180,000.
Still, Tesla probably wouldn’t be teasing prices this low unless it had some reason to think it could deliver some dramatic price reductions.
The key issue here is battery costs. Batteries are expensive, and it takes a lot of power to move a fully-loaded semi. Tesla says that its trucks consume “less than 2 kWh per mile,” so a 500-mile semi could require as much as 1,000 kWh of battery capacity. A Tesla executive stated last year that its battery pack costs were below $190 per kWh. At that price, 1,000 kWh of batteries would cost $190,000, putting the total cost of a truck in the neighborhood of $300,000.
But Tesla might be giving itself wiggle room with that 2 kWh per mile figure, and battery costs have continued to fall since last year. In April, another expert told Levine that a 500-mile truck might only need 500 kWh of battery capacity and that batteries could cost as little as $120 per kWh. That would make the total cost of the battery around $70,000.
That’s right in line with Tesla’s expected costs for the Semi battery. The $30,000 cost difference between the 300- and 500-mile versions of the Tesla truck suggests that Tesla believes it can get a 200-mile range for $30,000, which translates to $75,000 for a 500-mile battery.
One complication here is Tesla’s promise that the truck will be able to operate for a million miles without breaking down. Levine says an insider told him that this guarantee includes the battery. That’s surprising because a typical lithium-ion battery is good for 1,000 charge cycles—which would mean the 500-mile truck would need a new battery after 500,000 miles.
In an interview with Levine, Stanford researcher Tony Seba pointed out one way to get a longer range: “If you don’t fully charge and discharge a battery, it’s going to last far longer.” So perhaps Tesla is putting extra battery capacity on the truck, allowing it to charge and discharge slowly and never be fully drained. But, of course, adding more battery makes the truck more expensive.
Fortunately, Tesla has good reason to expect battery prices to continue falling over the next two to three years.
High-tech products almost always fall in cost as they are manufactured at higher volumes. And that’s been happening surprisingly quickly with batteries. A McKinsey study last year found battery costs per kWh had fallen from $1,000 in 2010 to $230 six years later. If costs continue to fall at that rate over the next three years, we can expect costs to be well under $100 per kWh by 2020, putting Tesla’s ambitious truck price targets comfortably within reach.