Dive Brief:

Tesla Motors' Nevada-based Gigafactory could drive down costs of its lithium-ion batteries more than 50%, according to Jefferies analyst Dan Dolev.

Dolev expects overall prices for Tesla’s battery packs to reach $125/kWh when the factory hits peak production, factoring in emerging economies of scale, improved battery chemistry and supply chain optimization.

The analysis approaches estimates from senior Tesla officials concerning the cost reductions. Dolov upped his price target for Tesla's stock to $365 a share from $360, largely in part due to his appraisal of the company's battery business.

Dive Insight:

Tesla Motors shook things up in the battery storage world earlier this year when it rolled out two battery storage options: a home battery and a grid battery, setting the stage for affordable battery storage options for the everyman.

Tesla's grid battery, the Powerwall, is currently priced at about $250/kWh, but CTO JB Strabuel said at a recent utility conference that he expects that price to drop to about $100/kWh by the end of the decade as the company ramps up production.

That ambitious estimate is now being approached by other analyst predictions.

"Our detailed battery component cost analysis details a path to 50%+ reduction in battery pack cost to $125/kWh by 2020,” Dolov said, according to StreetInsider. Jefferies expects the battery cells themselves to reach about $88/kWh by the end of the decade, and the battery packs to reach about $38/kWh.

The brunt of the demand for Tesla's batteries will come from the utility and transportation sectors, Musk and Straubel said at the Edison Electric Institute conference in June. As the U.S. shifts to an electrified economy, especially in vehicles, the demand for electricity will at least double, creating a new opportunity for utility revenue, and a big market for grid services. That, in turn, could help spur the growth of the energy storage market, which will mean more demand for batteries for utility use.

All that new demand will spark a massive increase in the scale of battery manufacturing for a number of companies, Straubel predicted, and as more companies realize economies of scale, that will tamp down storage costs faster than expected.