Full charge ahead
Tesla’s race to open battery factory,
SPARKS, NEV.— On a lonely mountain plain half an hour east of Reno, off a street named Electric Avenue, Tesla Motors Co. is building a massive battery plant called Gigafactory 1.
It’s a huge bet for a company known for taking risks: When it’s fully up and running, the $5-billion (U.S.) plant will almost double the world’s production of lithium-ion batteries by 2018.
So far, the factory is only partly complete, but the electric carmaker is racing to speed up its schedule and get as much built as possible by the time the company’s new Model 3 starts exiting the assembly line late next year.
“We are laying the foundation for battery construction, which is probably the biggest constraint” to the success of the Model 3 and future Tesla vehicles, chief executive Elon Musk said during a media tour of the factory last week.
For now, 1.9 million square feet of factory space has been built in the form of a giant four-storey rectangle sided in white, with a red stripe running along the top.
Eventually, Gigafactory 1 will stretch across a desolate landscape with more than 10 million square feet of space, making it one of the world’s largest buildings.
What’s more, Musk predicts that stationary energy storage “will eventually be the size of (Tesla’s) auto business.”
Speaking to a few dozen reporters after the tour, the co-founder called the factory “incredibly romantic” and said he sees more Gigafactories down the road for Tesla — and from other companies.
“It makes sense to have a Gigafactory in Europe, one in China, one in India — wherever there is a huge demand for the product,” Musk said. He hopes that the factories could one day combine cell, battery pack and vehicle assembly at the same location.
Tesla is planning a grand opening of the giant new battery factory Friday, although it will be many more months before it’s fully operational.
It’s “extremely crucial to their success,” Jessica Caldwell, senior analyst at Edmunds.com, said of the factory. Tesla hopes that the plant will ensure a steady battery supply for its vehicles and cut battery costs at least 30 per cent.
That’s especially important as Tesla positions itself, for the first time, as a carmaker for the masses — which means it needs to be prepared for mass-market production numbers.
More than 373,000 potential customers have already put down Model 3 preorder deposits, surprising even Tesla executives. Now the company — which has been plagued by missed production targets in the past — has to deliver on its promise to roll out the first of the cars by late 2017.
The Gigafactory will help make that possible. By bringing all of Tesla’s battery production under one roof, and at such a large scale, Musk said Tesla would be able to meet customer demand for the Model 3 and its other vehicles.
And it wants to do that sooner than previously expected. After the windfall of preorders, Musk announced that he would accelerate Tesla’s production plans by two years and pushed workers to speed up work on the Gigafactory so that it would be ready to handle the load.
The Model 3 will come with a starting price of $35,000 (U.S.), around half the price of the luxury flagship Model S. Tesla delivered about 50,000 Model S cars last year, but expects sales of all three of its models to hit 500,000 vehicles in 2018.
Musk has grand plans for the company. Last week, he said Tesla would introduce light trucks, heavy trucks and buses to sell in addition to its Model S, Model 3 and Model X SUV.
Gigafactory 1 is part of an even more ambitious Musk plan to create a new kind of sustainable energy company to provide technologies necessary to prevent, as he puts it, the collapse of civilization.
If Tesla’s recent bid for solar panel maker SolarCity goes through, a customer could run a house on solar power, recharge the electric car and store surplus power for later, all with Tesla products and services.
“Considering that he is moving much more beyond transportation, this Gigafactory and the batteries it produces is the linchpin for everything else,” said Edmunds.com’s Caldwell.
“If Musk can’t achieve the economies of scale and decrease production costs while increasing battery efficiencies, the future of Tesla would seem in question,” she added.
The factory now makes battery packs for rechargeable home and business storage units called Powerwall and Powerpack, with battery cells provided by Japanese electronics giant Panasonic Corp., a Gigafactory 1 investor.
The batteries in modern electric cars don’t resemble the familiar square black box under the hood on gasoline-powered cars. Instead, thousands of lithium-ion cells — the same kind of batteries that power laptop computers — are folded into packs and installed under the car.
Gigafactory workers are busy fitting out the battery cell production part of the plant, which will be run by Panasonic. Right now, Panasonic cells are made in Japan and shipped to Tesla’s Fremont, Calif. assembly plant.
When the battery factory starts full-run production, it will all be done there.
The plant’s $5-billion cost is financed through Tesla stock offerings and cash from Panasonic, which is dropping $1.6 billion on the project.
The investment pile is topped with incentives worth $1.25 billion from Nevada — no property tax for10 years, no sales tax for 20. Plus, $195 million in tax credits that Tesla can sell for cash.
Tesla could use more cash: Capital required in auto manufacturing is massive.
If the Model 3 is produced in volume with no major hitches and sells as well as Tesla hopes, some of that pressure will ease.
Until then, cash will be tight and shortsellers will continue to bet on failure. The most recent financial reports show Tesla’s free cash flow in negative territory.