Tesla said it was going to slash the cost of its electric cars to $25,000 – about one third less than the current cheapest model – with a series of incremental advances in everything from its basic manufacturing process to the material science of building better and more efficient batteries. They make up about one third of the cost of an electric car.
Tesla aims to switch to cylindrical batteries, which it will manufacture in-house using new alloys and combinations of metallurgical silicon and nickel.
Musk also said Tesla was going to start mining and refining some of the raw materials itself with the purchase of a 10,000 acre lithium clay deposit in Nevada and the construction of a new cathode plant.
Details, however, were sketchy and the new discount model would take three years to produce at any scale.
In essence, the long-term vision was to cut costs through economies of scale and the creation of a much more vertically integrated manufacturing model – so Tesla no longer has to rely on thousands of other firms for its highly complex supply chain.
One possible loser could be Panasonic, the Japanese firm which currently builds many of Tesla’s battery cells.
It makes sense but there are big risks attached to the strategy too.
It means Tesla is set to become a far more complex beast, requiring new management focus on new areas where it currently has little or zero experience.
Then again, with such a rich valuation, Tesla can afford to buy in expertise or simply acquire companies in some of these niche markets if it needs to.
In the past, Mr Musk has demonstrated no shortage of ingenuity.
But there is no question it opens up new potential hazards for a business which is already famously over-stretched and running close to full tilt.
It’s worth remembering that Tesla and others have already come a long way in reducing costs already.
The cost of electric car batteries currently stand at about $147 per kWh, down from $381 per kWh in 2015 and over $1,000 per kWh in 2010, according to Bloomberg New Energy Finance. Tesla believes that in order to compete directly with traditional internal combustion engine vehicles, this figure needs to be cut to under $100.
That won’t be easy but it does look achievable.
In any case, if Musk really does come anywhere near building 20m cars a year, one big challenge will be the availability of the essential materials.
Experts warn of a shortage of capacity to produce and refine lithium, cobalt and nickel at the sort of scale required to meet demand.
There is also likely to be growing scrutiny of the environmental impact.
As the world fights to end its addiction to fossil fuels, the environmental cost of mining the metals required to achieve that goal is becoming a big environmental problem in its own right.
Mining for lithium, for example, requires huge volumes of water and can cause pollution unless very carefully managed.
Although Musk may have stolen the limelight, it was another announcement from China’s President Xi Jinping on Tuesday which may be bigger news.
In a speech to the United Nations General Assembly, he pledged China would achieve carbon neutrality by 2060 and ensure its greenhouse gas emissions peak within the next decade.
The economic implications of that announcement are likely to be profound. They are likely to intensify a global scramble for these materials which could last for decades and could reshape the geopolitical map.
Tesla and others will have to battle hard to secure them.