Elon Musk's dream of producing 20 million Teslas per year hangs on whether or not it can pull off a major shift in battery tech

• Tesla wants to make lower cost electric vehicles, as a key part of its plan to fend off challenger.

• But it needs to invest in low-cost, cutting-edge battery tech to see that vision through.

• A mineral research firm says Tesla is not doing enough to control the costs of its batteries.

Elon Musk's ambition to sell 20 million Tesla vehicles per year by the end of the decade is no joke. So it was strange that its long-awaited plans for a low-cost electric vehicle was a complete no-show during the launch of Tesla's latest master plan in Texas last week.

A cheaper Tesla would be a surefire way of enticing a new crop of would-be customers. Instead, Tesla's CFO said at the event that it would focus on Silicon Valley's very much en vogue trend of "efficiency" to come up with the $175 billion that it needs to make the necessary investments to hit its 20-million-cars-per-year target.

Musk himself teased at a Morgan Stanley conference this week that there's a "clear path" to "a smaller vehicle that is half the production cost of the Model 3," Tesla's cheapest vehicle with a starting price at around $43,000.

Still, given Tesla's delivery of roughly 1.3 million vehicles last year, it clearly has a long way to go to hit Musk's goal. Where exactly should it start if it wants to get more efficient? Perhaps with the most expensive EV component of all: batteries.

"To truly build a sustainable low-cost EV, a number of cost controls need to be implemented across the supply chain," said Benchmark Mineral Intelligence CEO Simon Moores. "None more so than batteries and this wasn't showcased enough by Tesla at Investor Day."

Batteries, the rechargeable workhorses of EVs that quite literally power the whole thing, depend on a critical mix of metals, with perhaps none more critical than lithium. The trouble is, record high lithium prices and a sprawling supply chain that stretches back to China has made battery cost controls a headache for Tesla.

If Musk is serious about delivering EVs that everyone can afford, he'll need to get serious on bringing the costs of batteries down. Failure to do so risks ceding the market to hungry competitors. But if it can pull it off, Tesla has a clear path to expansion.

A big problem for Tesla is the high cost of Lithium

Though Tesla used last week's event to introduce new measures to support its bid to produce low-cost EVs last week – such as a new $5 billion Tesla gigafactory in Mexico – it didn't meaningfully discuss plans to reduce the high costs of its raw materials for batteries, namely lithium.

Moores told Insider that Tesla's next gen EV will need to make use of a particular type of lithium known as lithium iron phosphate (LFP) – a form of the metal that can be used to produce lower-cost, safer batteries.

Tesla has committed to LFP technology, confirming that almost half of its vehicles produced in the first three months of 2022 were LFP-based. There are, however, a few problems with this approach. Musk himself said at the Investor Day event that though "there's enough lithium in the United States to electrify all of Earth," the limiting factor is transforming the metal into battery-grade materials.

The US is one of five countries alongside China housing the largest reserves of lithium, but its production output is ranked extremely low. China, on the other hand, owns 99% of the LFP market, said Paul Guedes, director of capital markets at Nano One Materials, a lithium-ion battery manufacturer in Quebec.