Tesla layoffs, 4680 cylindrical batteries gone?

Recently, Tesla announced a major news: CEO Musk announced through internal emails and social media platforms that the company will carry out layoffs of over 10% globally. According to sources within the company, the layoffs in the battery department may even reach 30%.

Musk expressed conflicting feelings about this, calling it "a decision I deeply hate but have to take."

Just on the eve of this wave of layoffs, Drew Baglino, a key figure in Tesla's battery technology field and senior vice president, has confirmed his departure. He was the leader of the 4680 large cylindrical battery project and reported directly to Musk. He led many engineering projects at Tesla, including the 4680 battery production and the cathode factory at the Texas Gigafactory, but both projects have experienced serious delays.

Insiders revealed that Tesla also dismissed Anthony Thurston, the senior manager of the cathode materials and manufacturing department, who reported to Baglino on the cathode factory project.

Musk had high hopes for the 4680 large cylindrical battery, stating a year ago that it would not only be used in electric vehicles, but eventually also in Tesla's energy storage products, including the large-scale Megapack and the residential Powerwall.

Currently, it is not clear whether Musk is dissatisfied with the development of the dry cathode production method or with the overall progress of the 4680 battery, but one Tesla employee has defined the cathode manufacturing project as a "financial black hole."

Now, with the departure of the project leader and the delay in the 4680 battery cathode material, there are concerns about the future of Tesla's 4680 large cylindrical battery project.

Past and Present

To answer this question, we need to start from the beginning of the story.

In 2006, Musk put forward a grand vision: to manufacture increasingly affordable electric vehicles to replace fuel cars and to rapidly move the world towards a sustainable energy era.

In 2008, Tesla's intersection with cylindrical batteries officially began, after screening more than 500 suppliers, the company ultimately chose Panasonic-produced 18650 lithium cobalt oxide batteries for its first model, the Roadster. This 18mm in diameter and 65mm in height lithium battery was invented by Sony in 1991 and is considered the world's earliest lithium-ion battery.

The Roadster successfully broke into the market with outstanding performance of the 18650 cylindrical battery. Subsequently, Tesla collaborated with Panasonic to develop the second generation cylindrical battery, the 2170.

However, after a brief honeymoon period, Panasonic gradually became a constraint on Tesla's production capacity. On April 13, 2019, Musk bluntly stated on Twitter: "The current cell production capacity of the Gigafactory is only 24GWh, which has been continuously limiting Model 3 production since July. Until the capacity reaches 35GWh, Tesla will not make additional investments."

Despite the flood of Model 3 orders, battery supply has been tight.

Musk clearly does not want to be constrained. On February 3, 2020, CATL, a Chinese giant with over 50% market share in the power battery market, announced that it would supply lithium-ion batteries to Tesla. At the same time, Musk personally formed the "Roadrunner" project team to independently develop batteries in order to master the core technology of electric vehicles.

This move not only helps to achieve its goal of building low-cost electric vehicles, but also enables it to break free from reliance on suppliers. The 4680 large cylindrical battery has emerged in this context.

Tesla's long-term goal is to produce over 1000GWh of batteries internally, indicating their long-term planning and expectations for the application of the 4680 battery in the energy storage field.

Production setbacks

However, the transition from concept to reality has not been as smooth as expected.

In September 2020, Musk praised the 4680 battery at the battery launch event, claiming, "The 4680 battery is a major technological breakthrough. It will only take three years to achieve large-scale production. At that time, Tesla will launch a highly attractive new electric vehicle priced at only $24,000."

According to Tesla's predictions, once the 4680 battery is successfully mass-produced, it will increase the car's range by 16%, increase power output by 6 times, increase battery capacity by 5 times compared to the current products, and reduce costs by 16%. This will undoubtedly be a significant milestone for Tesla in terms of battery capacity, cost-effectiveness, and production efficiency.

In order to reduce costs and improve efficiency, Musk has always insisted on practicing the "first principles" approach, which involves constantly questioning everything that can be questioned until only the most basic facts and principles remain. This principle is regarded as the first rule of Tesla's working method: "question every requirement."

In order to reduce costs, Tesla has made several technological innovations in the cylindrical battery manufacturing process, but at the same time, it has significantly increased the difficulty of mass production.

Since the release of the 4680 battery in 2020, Tesla has been working hard to overcome technical challenges and increase production capacity. Two key technologies are particularly crucial:

Full tab forming technology: Musk boldly eliminated the traditional battery tabs and instead made the entire bottom and shell of the battery perform the function of the tabs, aiming to accelerate charging speed and enhance heat dissipation. However, this has led to a significant increase in the welding area, decreased connection stability, and a substantial decrease in the yield rate.

Dry electrode process: In response to the toxic solvents and moisture issues generated by the mainstream wet electrode process, as well as the complex processes and high costs, Musk decisively invested $290 million to acquire the supercapacitor company Maxwell, introducing dry electrode technology into lithium battery manufacturing. In theory, the dry process does not require baking, has lower costs, faster speed, and less environmental impact.

Nevertheless, as of the end of 2022, the yield rate of Tesla's 4680 battery is only 92%, while achieving the required 95% yield rate for cost reduction and commercial application remains a challenge. In addition, Tesla also needs to continue developing dry negative and positive electrode materials.

In terms of production capacity layout, Tesla's Texas Gigafactory already has one 4680 production line, with three additional lines under construction. When combined with the production capacity of the Fremont factory, it is estimated that the total annual production of batteries could reach 7.2 billion. Based on the calculation that approximately 1.2 million Cybertrucks can be assembled per 10 million batteries, Tesla's current production capacity can only meet the demand for approximately 864,000 vehicles per year. Contrasting this with Tesla's ambitious goal of selling 1.81 million vehicles in 2023 and achieving an annual production of 20 million vehicles by 2030, it is clear that the production of 4680 batteries will not be able to meet more than half of the demand.

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Adding insult to injury, Tesla's 4680 cylindrical batteries are facing unprecedented challenges in terms of production capacity and technology. What's even worse is that Tesla's performance pillar is showing signs of instability.

In the first quarter of 2024, Tesla's global cumulative delivery volume was only 387,000 vehicles, a year-on-year decrease of 8.53% and a significant drop of 20.2% compared to the previous quarter. This marks the first quarter-on-quarter sales decline in nearly four years and the worst performance in the past five quarters.

In the Chinese market, Tesla's market share plummeted from around 16% in 2021 to about 6.7% by the end of 2023. Even in its home market of the United States, its share dropped from 62% in 2022 to 55% last year. Globally, Tesla still holds the top position with a 19.9% share, but the gap with the second-place BYD (17.1%) is narrowing, indicating a significant weakening of Tesla's market dominance.

The competition in the new energy vehicle market is becoming increasingly fierce, with many players emerging and intense competition prevailing. In another arena, the level of competition is equally intense.

Elon Musk once said, "You can start a war, but when it ends, it's up to me."

Although Musk ignited the boom in the large cylindrical battery industry, he has not been able to fulfill his promises on time and has fallen into a "delay" predicament. However, competitors have not backed down. Major global battery companies, including CATL, BYD, EVE Energy, SVOLT, Guoxuan High-Tech, Farasis Energy, Lishen Battery, PENG HUI ENERGY, LG Energy Solution, Panasonic, and Samsung SDI, are actively deploying and promoting the commercialization of large cylindrical batteries.

According to the "2023 China Large Cylindrical Lithium Battery Industry Development Blue Book," as of October 2023, the global planned production capacity of large cylindrical batteries has exceeded 450GWh.

Against the backdrop of severe overcapacity in the Chinese battery industry, the mass production of the 4680 battery is facing challenges, perhaps still existing, or perhaps "as if."

Finally,

The growth of the energy storage business may be the most gratifying thing for Musk at this time. On January 25, Tesla released its full-year 2023 financial report, stating that the total installed capacity of the energy storage business in 2023 was 14.7GWh, a 125% year-on-year increase. On April 17, Tesla officially announced that the energy storage super factory in Shanghai has new developments. The project is scheduled to start construction in May this year and achieve mass production in the first quarter of 2025.

Musk has stated that Tesla's energy storage business will be another long-term growth point, with growth rates exceeding those of the automotive sector.

Faced with multiple pressures such as the departure of the project leader for the 4680 large cylindrical battery, challenges in mass production, difficulty in meeting market demand, and declining market share, it remains to be seen whether Tesla can continue to adhere to this innovative battery technology or choose a strategic shift under the dual test of industry competition and internal adjustments, upgrading the "car, storage, AI" strategic blueprint, which is worth industry attention.

Regardless of the future fate of the 4680 large cylindrical battery, Tesla's spirit of exploration and courage in battery technology innovation is still worthy of praise and reference.