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Tesla's lead in batteries will final ten years as GM attracts nearer

Timothy Artman | Tesla Motors, Inc.

Tesla has a significant lead over competitors when it comes to paying less for lithium battery cells and having the most affordable EV battery packs, according to a new report from Cairn Energy Research Advisors.

In addition, Tesla is expected to continue to have the lowest cost in the EV industry through the end of this decade, with General Motors bridging the gap, Cairn told ERA.

"Tesla is definitely stepping on the accelerator. They see this as the crucial phase and are expanding their capacities," said Sam Jaffe, Managing Director of Cairn ERA. "Look at what they're doing in Shanghai and Berlin and now Austin, Texas. They just stack factory by factory."

Jaffe, who follows the battery and electric vehicle industries, says Tesla's advantage comes not just from the size of its business, but also from Elon Musk's relentless pursuit of lower battery costs. Battery packs are the biggest cost in making electric vehicles and the main reason the average transaction price for electric vehicles sold in February was $ 53,392, compared to $ 40,472 for all new vehicles, according to auto website Edmunds.

According to Cairn ERA, Tesla pays an average of $ 142 per kilowatt hour (kWh) for battery cells purchased from its three suppliers Panasonic, LG Chem and CATL. By comparison, GM pays an average of $ 169 per kWh for its battery cells, while the industry average is around $ 186 per kWh. Tesla pays far less than other automakers for lithium-ion battery cells, leading the industry on the cost of making EV battery packs. Cairns data estimates that Tesla's batteries cost an average of $ 187 per kWh, while GM's batteries cost $ 207 per kWh and the auto industry spends an average of $ 246 per kWh on batteries.

According to Jaffe, Tesla's batteries are 10% cheaper than GM's and 24% cheaper than the rest of the auto industry, as Elon Musk and his team have been aggressively pushing to cut costs over the past decade. "Everything is geared towards costs. The lower the costs, the cheaper the cars," he said.

Tesla did not return a request for comment on Cairn ERA's cost calculations. At Tesla Battery Day last September, Musk showed advances in cell design that he said could cut battery costs by 54%. During the event, Musk said, "One of the things that worries me the most is that we don't have a really affordable car yet."

While Cairn ERA research predicts that Tesla will remain the cost leader in battery cells and EV battery packs through 2030, GM also predicts that GM will fill that void and approach price parity with Tesla by the end of the decade. Jaffe said GM's ability to trap Tesla reflects automakers' decision to move all-in vehicles to electric vehicles.

"GM is fully committed and has this fully inclusive approach that allows it to come very close to Tesla, although the scale is still not in line with what Tesla plans to do," said Jaffe.

GM plans to invest $ 22 billion by 2025 to develop its EV program, which includes the launch of the all-electric Cadillac Lyriq later this year. A battery facility operated by GM and LG Chem will open outside of Lordstown, Ohio next year. As this facility boosts the production of Ultium batteries, GM is expected to steadily reduce its EV costs. When asked about the cost outlook for Cairn ERA, GM spokesman Jim Cain said, "We want to be the industry benchmark and look forward to reading the report."

The big challenge for many automakers will be to catch up with Tesla and GM on EV costs. According to Jaffe, some automakers like Volkswagen are making the necessary investments to fill the void, but many others are not.

As EV sales grow over the next decade, Jaffe believes that some automakers won't be the size or cost-effectiveness to be truly competitive. In particular, Jaffe asks whether the Japanese automakers were too slow to fully embrace electrical use.

"They dug a hole because they hated it," he said. "The pulling and yelling towards this endgame of electric vehicles really hurt them."

CNBC's Meghan Reeder contributed to this report

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