CEO Elon Musk earlier promised a $35,000 Tesla Model 3 price. But for this to happen, an analyst said the automaker's Gigafactory and advances in battery chemistry are crucial to bringing battery prices down.
"Lowering battery cost via changes to cell chemistry and Gigafactory scale benefits are critical elements of Tesla's ability to sell an affordable Model 3 starting at $35K," Jefferies analyst Dan Dolev said via StreetInsider.
The firm believes Tesla can bring down battery costs, currently estimated at $250 per kWh (20 percent of the cost to make the Model S), to as much as $125 per kWh (12 to 13 percent of the Model 3 production cost) by 2020.
Switching to new lithium-rich nickel cobalt manganese cathode and using an ionic gel electrolyte in place of the liquid one should bring battery prices down, initially.
Further down the road, Jefferies expects economies of scale, increased automation, production domestication and supply chain optimization brought by Tesla's Gigafactory to reduce battery costs even further.
Per the analysis, the Tesla Model 3 price of $35,000 would become economically viable with the Palo Alto, Calif.-based EV maker reaping a 23 percent gross margin. Model S sedan and Model X SUV profits will also rise to 33 percent - high numbers for an automaker, as noted by the firm.
Then again, Tesla may not be the only one to reap the benefits of reduced battery prices for EVs.
"There have been several analyses indicating that cell prices are declining, and other manufacturers looking to boost the range of their electric cars are likely counting on it," GreenCarReports said.
The website pointed out that the next-gen Nissan Leaf could have a significantly better range for the same price.
Tesla is also in a race against GM's Chevrolet Bolt to launch an affordable EV with a 200-mile range.
Noting that GM has hasn't announced where is will gets its battery packs, Mashable speculated that if Tesla's Gigafactories go online on time, "it might just have the issue sorted."
March 2016 will see the unveiling and start of pre-orders for the Tesla Model 3. Musk confirmed a $35,000 starting price for the EV set for production in early 2017.
