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Tesla (s TSLA) could have never created the Model S — its second-generation electric car that won Motor Trend’s car of the year award for 2012 — with battery technology from a few decades ago, said Tesla’s CTO and co-founder J.B. Straubel at the Cleantech Investor Summit last week. He explained, “The type of vehicle we can create is fundamentally different every time that tech [batteries] moves a little forward.”

While battery innovation appears gradual, the incremental leaps add up over time. Battery innovation is improving around 5 to 8 percent per year, which can deliver a doubling in core performance metrics every ten years, which is ultimately really “revolutionary” said Straubel. Because of the large size and heavy physical weight of batteries involved with electric cars, the impact of battery innovation on the design of the car can be even more significant than Moore’s Law has on some computing products, added Straubel.

For car design, “It’s almost as if the properties of steel were improving at a rate of 5 to 8 percent per year,” said Straubel.

The new design and engineering of the Model S has been Tesla’s differentiator, and it is what the company is hoping will help it move into profitability and success as a more mainstream auto maker down the road. The car is one of the first electric cars in the world that was designed from the ground up as electric. In contrast most auto makers that have built electric cars have taken an existing traditional gas-powered car and put batteries in it.

The Model S, in comparison, has placed the battery along the bottom of the car, so that it doesn’t take up seating and storage space, and also so that the car has a low center of gravity and is more aerodynamic. The Tesla Roadster (it’s first car) and the Nissan LEAF are based on the bodies of gas-powered cars.

Shai Agassi, the founder and former CEO of Better Place, also touted the importance of the rate of battery innovation during his talk at the Cleantech Investor Summit. He said the energy density of batteries goes up 15 percent every 18 months; the cost per kilowatt hour goes down 15 percent every 18 months; the life cycles of the batteries (how many times it can charge and recharge) goes up 15 percent every 18 months; and the cost per lifecycle-mile does down 50 percent every 18 months. “If you don’t like the margins in this [electric car] business just wait 12 months,” said Agassi.

The crucial factor for both Tesla and Better Place will be surviving in an early market place as these improvements emerge. As with all startups, timing and execution will be key.