Tesla Inc (NASDAQ: TSLA) pays significantly less than its rivals for lithium battery cells and has the lowest cost EV battery packs, according to Cairn Energy Research Advisors, CNBC reported Wednesday.
What Happened: The Elon Musk-led company spends 10% less on battery packs than its nearest rival General Motors Company (NYSE: GM). Compared with the industry average, Tesla pays 24% less — thanks to an aggressive push to drive costs downwards, according to Sam Jaffe, managing director of Cairn ERA.
The lead over rivals is reportedly likely to stay in place through the end of this decade, with GM expected to narrow the gulf.
“Everything is focused on cost. The lower the cost, the more affordable the cars become,” said Jaffe.
Tesla pays on average $142 per kilowatt-hour for battery cells that it buys from suppliers Panasonic Corporation (OTC: PCRFY), LG Chem, and CATL. Meanwhile, GM pays $169 per kWh and the industry average stands at $186 per kWh, as per Cairn ERA, reported CNBC.
In terms of battery packs, Tesla shells out $187 per KWh on average, while GM pays $207 per kWh. The industry average is $246 per kWh.
Why It Matters: Jaffe expects GM to get close to achieving price parity with Tesla on battery cells and packs by the end of the decade, CNBC reported.
“GM is fully committed and is taking this complete integrative approach which is going to allow it to be very close to Tesla, although the scale still isn’t in the same ballpark as what Tesla is planning,” said Jaffe.
Other automakers that are making investments to bridge the gap with Tesla include Volkswagen AG (OTC: VWAGY), as per the Cairn ERA executive.
See Also: US Needs To Make Batteries On A Large-Scale To Avoid Chip-Like Shortage, Says Ford CEO
In November, GM CEO Mary Barra said that forty percent of the company’s U.S. entries would be battery electric vehicles by 2025. GM also announced a financial commitment to EVs and AVs to the tune of $27 billion through the same period.
The automaker is partnering with LG Chem in setting up a second battery manufacturing unit in the United States, according to the Wall Street Journal.
On Tuesday, it was reported that the Korean battery supplier is also in talks with Tesla in a bid to make the latter’s latest battery cells in U.S. and Europe.
Price Action: Tesla shares closed nearly 0.8% lower at $668.06 on Wednesday and fell 0.52% in the after-hours session. On the same day, GM shares closed 3.99% higher at $56.83 and fell 0.19% in the after-hours trading.
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