Dive Brief:

• Tesla on Tuesday unveiled a new electric vehicle (EV) battery design featuring improvements to density, cost per kilowatt-hour and manufacturing efficiency, but the company also cautioned that at-scale production of the new batteries is still two to three years away.
• Experts say the new design could drop battery prices from about $127/kWh in 2019 to as low as $56/kWh. According to Tesla co-founder and CEO Elon Musk, this will enable the company to produce a $25,000 electric car in the next three years.
• But while EVs are expected to rapidly gain market share and add substantial load to utility systems, Musk appeared to downplay their potential as grid assets. Asked about Tesla's vehicle-to-grid (V2G) capabilities, he said stationary storage appears to be a better match for utility purposes.

Dive Insight:

Tesla's "Battery Day" was widely-hyped and highly anticipated, but Musk took to Twitter the day before to tamp down expectations. 

"Important note about Tesla Battery Day unveil tomorrow," he wrote. "This affects long-term production, especially Semi, Cybertruck & Roadster, but what we announce will not reach serious high-volume production until 2022."

Musk also noted that the company plans to "increase, not reduce battery cell purchases" from Panasonic, LG and other battery manufacturers while it continues to ramp up its own production and still sees "significant shortages" of batteries in 2022 and beyond.

Shares of Tesla were down about as much as 7.6% in pre-market trading.

While the improved batteries may not be widely available for years, they represent "substantial advancements," according to Ben Prochazka, national director of the Electrification Coalition.

The new 4680 battery, named for its size, will be capable of storing 380 Wh/kg, amounting to a 54% improvement over the Panasonic 2170 cells currently used in the Tesla Model 3, Prochazka said in an email. Costs per kilowatt-hour will decline about 56%.

Eventually, Musk has said he hopes Tesla will produce 20 million vehicles a year as the demand for electric vehicles increases. Higher adoption of EVs is expected to drive electric grid demand, but Musk seemed to downplay the ability of plug-in vehicles to provide some services to the grid or to power homes.

Questions about V2G usefulness 

"Vehicle-to-grid sounds good but I think actually has a much lower utility than people think," Musk said. "Very few people would actually use vehicle-to-grid" capabilities, he said, in part because cars are not plugged in constantly.

"I think it's going to be better for people's freedom of action to have a Powerwall and a car separate," Musk said, referring to the Tesla's residential stationary storage product. Combine a local battery with solar generation and "you basically become your own utility," he said.

Future generations of Tesla's power electronics will enable V2G capabilities in North America, according to Tesla Senior Vice President of Powertrain and Energy Engineering ​Drew Baglino, who also spoke at the event. But additional hardware would be required to allow cars to back up a home's electric supply. 

Future cars "will at least be able to do bi-directional energy flows for the purposes of energy market participation, but even for that it's important to remember that your car isn't plugged in 24-7 so it's kind of unpredictable," said Baglino. "It will have a value but it's not the same as a stationary battery pack."

"Despite the large quantity of EVs coming online over the next decade, the jury is still out to what extent EVs in a V2G role will play a major role in the future grid," said Roger Lueken, senior associate at The Brattle Group.

"Elon noted that EVs are a much less reliable grid asset than utility-scale batteries, as they're not always plugged in," Lueken said in an email. "Vehicle-to-grid charging also requires customers to participate and be willing to have the utility or other third party access their car's battery."

Improvements to stationary storage, also 

Tesla's new EV battery design and production aspirations may not have immediate impacts for utilities, but that could change in the future according to Hanjiro Ambrose, a researcher at the University of California, Davis.

"There's a clear path to success but there's a lot of work between here and there," Ambrose said. For now, he said EVs will be primarily used for grid regulation and services, as the cost remains high. But V2G potential "gets more promising by the day," as a new generation of batteries could be more robust and dynamically managed to minimize degradation.

"We're still going to see batteries really need to be able to take advantage of market structure," said Ambrose. "They need to be able to stack value in some way to take advantage of the capacity they can provide to the grid."

There was some news out of Tesla's Battery Day event related to larger applications, according James Frith, head of energy storage at BloombergNEF.

"The interesting take away for stationary storage is that Musk highlighted that Tesla would use lithium iron phosphate (LFP) based batteries for stationary applications, as energy density is less of an issue," Frith said in an email. "This makes sense particularly as we move to a period where stationary storage is used more for 'energy shifting' rather than frequency regulation."

Energy shifting — charging from the grid when power prices are low or renewables are being curtailed, and then discharging when prices are higher — is an application more suited to LFP chemistry, said Frith, "which provides a longer cycle life, lower raw material cost and fewer potential raw material supply constraints."