Tesla says it can turn a profit on a volume of 20,000 Model S EVs sold a year. The Model S will retail for $57,400.  (Source: Tesla Motors)

Tesla was briefly profitable on a volume of 1,000 Roadster EVs shipped a year. The Roadster retails for $109,000.  (Source: Tesla Motors)

The key to the automakers profitability at low volumes lies in its smaller, more affordable battery pack, which the company says is more advanced than its competitors' designs.  (Source: EV Authority)
Cheerful outlook on Model S may be calculated to offset recent pessimism

Not long after its stock took a nasty 20 percent dive on the New York Stock Exchange, sending it back closer to its initial public offering price, Tesla Motors Inc. has released a cheerful report promising great things financially.  Tesla's plans all revolve around the Model S mass-market electric vehicle, an entry-level luxury electric vehicle that Tesla is racing to design and bring to market.

Though the Model S won't make it to Tesla dealerships until 2012, the company is already promising great things.  In an interview with Bloomberg, Chief Technology Officer J.B. Straubel claims that the Model S will be profitable at 20,000 units sold per year, without direct government aid to the automaker.  That claim is bold, considering that experts predict that Nissan and its affiliate Renault SA are expected to have to sell 500,000 units of their Nissan LEAF EV to be profitable.  Similar estimates exist for General Motors Chevy Volt.

So how can Tesla hope to turn a profit on 1/25th of the volume?  Tesla says the key lies in its approach to lithium-ion batteries.  Tesla uses smaller lithium-ion cells, similar to those in laptops.  Its batteries are produced by Japanese electronics giant Panasonic Corp.

By contrast Nissan, GM, and others are using larger packs.  NEC, a Japanese firm, produces Nissan’s pack while GM's is made by South Korea's LG Chem Ltd.

Tesla's vehicle is expected to retail for $57,400 USD, versus $41,000 USD for the 2011 Chevy Volt or $32,780 USD for the 2011 Nissan LEAF EV.  The current generation Tesla Roadster 2.5 retails for $109,000 USD.

According to The Wall Street Journal Nissan's battery pack costs about $750/kWh.  Tesla says it will deliver at a cost of around $200/kWh.

Mr. Straubel states, "[Nissan] will have a cost challenge that will be more difficult to solve.  It will require a lot higher volume before they really get to a cost point that is internally sustainable."

David Reuter, a spokesman for the Nissan's North American unit would only comment, "The Nissan Leaf product program will be profitable over its life cycle," declining to comment on how long that "life cycle" might be.

Brett Smith, an analyst specializing in alternative propulsion vehicles at the Center for Automotive Research in Ann Arbor, Michigan, agrees that Tesla is outsmarting its competitors.  He states, "There’s a method to their madness.  Tesla is using cells that, while not exactly the same as those in laptops, can be made on existing lines that already mass-produce them.  Especially for a small manufacturer, there’s a logic to what they’re doing."

The fact that Tesla was briefly profitable when it was solely operating based on the Roadster and not investing significantly in the Model S lends support to the company's claims, as well.

Still Tesla's plan depends on increasing its production and output by a factor of 20 -- it currently only ships around 1,000 Roadsters a year.

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