for the Gen-III vehicle to be launched in 2017. As mentioned above, Tesla's
value depends on its future electric vehicle sales, which, in turn, depends
upon the potential size of the market. There are various factors that could
affect the potential size of the market, such as the price of oil, fuel efficiency
improvements in its internal combustion engine cars, the cost of batteries,
recharging infrastructure, and government incentives. In China, the
government is investing heavily in setting up a recharging infrastructure.
China is already the world's largest automobile market, and it is growing at a
much faster pace than the U.S. It is inevitable then that China will also be
the largest market for plug-in vehicles. As Tesla expands internationally,
China could be an important source of sales for Tesla, especially with the
launch of the Gen-III later in the decade. Tesla has one showroom planned
for China over the next couple of years.
— KEY TRENDS —

Falling battery costs to speed up adoption of electric cars
When the Tesla Roadster 1.0 was introduced in 2008, the battery cost was
estimated at ~$36,000 for a 53kWh capacity, equivalent to $680 per kWh.
This declined to ~$472 per kWh for the Roadster 2.5 introduced in 2010.
Battery costs are expected to fall by over 60% per kilowatt hour by 2025.
Battery costs are expected to come down as technology improves and the
manufacturing process achieves economies of scale. There are significant
R&D expenses being poured into different battery technologies and it may be
possible that an entirely new battery technology may be necessary for electric
cars to become mainstream.
Tesla is employing a different form factor for its batteries compared to the rest of
the automobile industry
Tesla has been using the cylindrical cell form factor, which is primarily used
in consumer electronics (such as laptops), while the rest of the major auto
manufacturers are using the prismatic (or flat) form factor. The rapid
development in the consumer electronics industry over the past few years has
helped reduce the per kWh cost for cylindrical form batteries, giving it a
significant cost advantage. Tesla provides a number of battery pack options
for the Model S, and offers far better range than competing electric vehicles.
The company is a pioneer in adapting cylindrical form batteries for
automotive use, as evidenced by the success of the Roadster since its launch
in 2008. Furthermore, other automakers, such as Daimler and Toyota, have
recognized Tesla's strength and are sourcing power train/battery components
from Tesla. However, the prismatic form factor chosen by other automakers
has its advantages. It is less complex (fewer cells per pack), and less
susceptible to heating issues. Furthermore, the cost differential between the
prismatic and cylindrical cell form will narrow over time. The evolution of
battery technology, and Tesla's ability to remain the leader, will be a key
trend to watch out for.
The electric car space is getting increasingly competitive with both established

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