> But lithium is still not cheap.
Lithium is extremely cheap. The cost of the Lithium has practically no impact on the cost of the batteries. Most of the cost of batteries is work.
This venture makes sense because as lithium batteries are used, they lose capacity, and thus their specific energy gets worse. At this point, they are no longer very useful for cars, yet still can be used for other things. As Tesla recovers the used batteries from their cars, they can resell them as home batteries.
Recycling this way batteries that are not good for cars but fine for less demanding applications would be really smart. Is there any indication that they actually do this?
Seems they alluded to exactly that some years ago (2008!): http://www.teslamotors.com/blog/mythbusters-part-3-recycling... "... at some unfortunate point, the ESS will come to the end of its useful life in the application :(. However, it might be possible to use the ESS in other applications. For example, the ESS could be used as a power source for off-grid backup or load leveling. "
I think they've been doing it in one-off situations with Solar City now for a while. If they are not doing exactly this with this venture, I'd be surprised.
But lithium is still not cheap. I suppose that a different battery technology, with lower energy density per unit of weight, could be much cheaper with comparable efficiency. But Tesla only has expertise in lithium batteries, so some other manufacturer could use the momentum with a lower-cost offer.