Key Takeaways
1. Tesla previously relied on Chinese-made LFP batteries, which disqualified its basic Model 3 from federal tax credits.
2. The company is building its own LFP battery factory in Nevada to produce affordable batteries for electric vehicles and energy storage solutions.
3. Tesla’s new LFP factory aims to enable the return of more affordable models like the standard-range Model 3 and a cheaper RWD Model Y.
4. Future challenges include potential elimination of federal tax credits and reliance on older production equipment compared to competitors’ advanced technology.
5. American-made LFP batteries may not be as cost-effective as Chinese counterparts but will help reduce reliance on China and support more affordable vehicle options in the U.S. market.
Before President Biden’s administration introduced federal tax credit subsidies for batteries and electric vehicles made in the US, Tesla primarily sold its least expensive standard-range models equipped with batteries from China.
These CATL iron phosphate (LFP) cells, produced by the world’s largest battery manufacturer, caused vehicles like the basic Model 3 to miss out on federal tax credits since they were merely assembled in Fremont, while the actual components came from China.
Tesla’s New Battery Factory
In response, Tesla opted to construct its own LFP battery factory, recognizing that the affordable LFP technology is essential not just for mainstream electric vehicles but also serves as a foundation for energy storage solutions. This includes popular mobile power stations in the Anker Solix series and Tesla’s large Megapacks.
Although Biden’s clean energy tax credits might be at risk due to the proposed Big Beautiful Bill federal budget pending a vote, Tesla is proceeding with its LFP battery factory project.
Progress in Production
The company revealed that the installation of the LFP production line in Nevada is “nearing completion,” suggesting that its initial products featuring made-in-the-US LFP batteries are imminent. Currently, Tesla delivers its least expensive RWD Model Y with 2170 cells, which do not utilize the affordable iron phosphate chemistry. Therefore, the LFP factory could enable a more affordable RWD Model Y and bring back the standard-range Model 3 as the least expensive Tesla vehicle.
However, it’s uncertain how competitive Tesla’s new LFP battery will be. The company aimed to navigate around the made-in-US tax credit requirements similar to Ford’s strategy for its LFP cell facility. Instead of purchasing Chinese cells directly, Tesla sought production line equipment and expertise from CATL.
Future Challenges
While this strategy technically qualifies Tesla’s LFP batteries for the $45/kWh federal subsidy on the completed pack, the tax credit may be eliminated as soon as this year, possibly leaving Tesla with outdated equipment. CATL’s state-of-the-art LFP cells that power direct competitors to the Model Y, like the Xiaomi YU7, boast some of the highest energy densities in their category and can charge in just 12 minutes. By the time the Nevada factory begins mass production of made-in-US cells, the equipment supplied to Tesla will be two years old.
Furthermore, Tesla is unlikely to implement the more affordable but intricate dry electrode manufacturing process from its 4680 Cybertruck battery for the LFP ones, since CATL employs a different design and production technique for their iron phosphate cells.
Nonetheless, while the American-made Tesla LFP batteries may not be as cost-effective as those sourced directly from CATL, they will reduce Tesla’s reliance on China for Megapacks and may facilitate the introduction of more affordable Model Y and Model 3 options in the US market as well.
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