Tesla Motors Inc (NASDAQ:TSLA), on the other hand, lives for electric vehicles. As a start-up automaker trying to make its way across the valley of death that has claimed so many other automakers, each model the company produces must turn a profit, or Tesla will be out of business. Right now, the only way to make a profitable electric car is to price it where the huge cost of the battery is lessened in comparison to the other features of a luxury car.
Building a better battery
When the Tesla Roadster was built, it was known as the car powered by a whole ton of laptop batteries strapped together. It wasn’t because the company’s development team was lazy, it was because these were the type of battery available to them. Looking at the bigger picture, it does make sense. The development of new technologies progresses faster when there is a demand for them. With no manufacturer building electric cars in significant numbers, it wouldn’t make sense to spend money to develop batteries for electric cars.
But now there is a growing demand for electric car batteries. With GM’s Volt, Nissan’s Leaf, Ford’s Focus Electric, and Tesla’s Model S hitting production, battery usage in electric cars could begin to drive a meaningful segment of the battery market. As a result, a number of improved battery designs are being developed in laboratories, involving silicon, graphene, and a zinc-air composition, to name a few.
Right now, investing in the next revolutionary battery is about as safe as investing in pink-sheet microcap biotech companies. The majority of these technologies will probably never see widespread commercialization, and many others may never even come close.
A better battery would probably not mean too much to automakers like GM and Ford. These manufacturers derive nearly all of their car-sales revenue from conventionally powered vehicles. Even a doubling in their EV sales would not drastically affect earnings.
But Tesla could benefit immensely from such battery improvements. Any reduction in per-kWh cost reduces the input cost to Tesla, and would allow the company to make less expensive EVs with greater ease. Vehicles like the Model S would also see range improvements making them more attractive to luxury car buyers with range anxiety.
Batteries: Critical components within the car
Throughout their history, electric cars have only been as good as the batteries they were powered by. While battery range led to the failure of electric cars to maintain market share from the early part of the twentieth century, more powerful batteries are back today, batteries that will allow the electric car to challenge the automotive market once again. But there is another factor that, if fixed, could allow EVs to take off.
For a look at how faster charging could shake up the car market, look for the second part of this series.
Alexander MacLennan owns shares of Tesla Motors . The Motley Fool recommends Ford, General Motors, and Tesla Motors . The Motley Fool owns shares of Ford and Tesla Motors .
