Tesla To Reveal Plans For Huge Battery Factory
February 24, 2014

Tesla To Reveal Plans For Huge Battery Factory

Elon Musk, the founder of Tesla Motors, will be announcing plans next week to build a huge lithium battery factory called the “Gigafactory.” Musk says that the new factory will be the key for producing a more “affordable” electric car.

“It’s the future of the company. They need to cut the cost of the battery in half in order to make a half-million cars. This is how they are going to do it,” Craig Irwin, an analyst from Wedbush Securities stated, according to CNN Money.

Musk said that by November, the factory’s capacity would be equal to all of the lithium ion battery factories around the world. It will produce batteries for Tesla vehicles, as well as laptops, tablets and smartphones.

Panasonic is Tesla’s current primary supplier of batteries and will likely be a partner in the venture. Tesla has stated on numerous occasions that it would be selling more vehicles if it wasn’t limited with the supply of batteries.

The current base price for a Tesla S is $69,000. However, with the building of the new factory, Musk says within three years the Tesla S will be mass produced and be offered for a substantially lower price.

According to Forbes, the next generation, Tesla X, won’t be delivered until next year. And the third-generation vehicle won’t be available until the factory is completed in 2016-2017. This third generation Tesla will be a $35,000 model, which is well below the current going price for the first-generation Tesla S. The lower selling price will be due to the ability to mass produce the vehicle, resulting from Tesla manufacturing its own batteries.

Musk says, “It’s necessary to have it occur in 3 years. It’s not necessary if we allow that timeframe to expand.”

Once the factory is complete, 200,000 third generation Teslas could be manufactured in the first year, but the design and engineering of the vehicle must also be completed when the factory is finished.

“Over the time I’ve covered the company. I have seen an evolution,” said Ben Kallo, analyst with Baird & Co. “It started out as a dream. Now the mentality I see in the company is they believe they’re close enough to change the whole industry in the next 10 years to the point where electric cars are the preferred mode of transportation.”

“The launch of low-cost Gen III vehicles relies on the ability to reduce battery costs. If TSLA is unable to significantly reduce battery costs through economies of scale or technological advances, it may prove challenging to produce vehicles at the $35,000 price point without reductions in performance.” Kallo added, according to investors.com.

Musk hasn’t released the cost of constructing the factory. Kallo believes the cost will be between $2 and $5 billion, while Irwin says it could be over $10 billion. The location of the factory has not been disclosed either, but reports have been released that a south western US location is possible.

Musk is also a major shareholder and chairman of SolarCity, which is a home-and-business solar installer. The factory could also have a positive effect on SolarCity’s operations.

“Very shortly, we will be ready to share more information about the Tesla Gigafactory,” Musk said. “This will allow us to achieve a major reduction in the cost of our battery packs and accelerate the pace of battery innovation. Working in partnership with our suppliers, we plan to integrate precursor material, cell, module and pack production into one facility. With this facility, we feel highly confident of being able to create a compelling and affordable electric car in approximately three years. This will also allow us to address the solar power industry’s need for a massive volume of stationary battery packs.”

Image Credit: Win McNamee / Thinkstock

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