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Tesla (NASDAQ: TSLA  ) is set to announce a plan this week to build the world's largest battery factory. The plan will include the involvement of Panasonic and other partners, and it will be so big that Tesla's CEO Elon Musk is calling it a "gigafactory."

The motivation for building the factory is multiple. Tesla has struggled to secure a reliable supply of batteries, and building a large facility will allow it to be able to build its own – a step toward vertically integrating Tesla's electric vehicle business. Tesla could also sell batteries to other EV companies, as well as sell batteries for storing energy storage from renewable sources. This would provide alternative revenue streams for a company that has thus far focused solely on the luxury car market.

The impact on the EV market could be huge. Tesla's factory, which could cost $2 billion to $5 billion, would be able to churn out 30 gigawatts of production capacity each year. The gigafactory would not only be the largest battery plant in the world, but would more or less equal all global output combined. This could dramatically lower the cost of producing lithium-ion batteries for electric cars, typically one of the costliest components. Bringing down battery costs will be key to making electric vehicles affordable for the mass market.

But the implications could go beyond the EV market. Renewable energy that is intermittent has been searching for a way to capture and store energy to be used in off hours. Tesla's gigafactory could bring down the cost of energy storage, allowing solar energy to be discharged at night and wind power to be used during calm hours. SolarCity, of which Elon Musk is the largest shareholder, would purchase Tesla batteries for its solar systems.

The location of the gigafactory has not yet been announced, but Musk said it would include lots of solar and wind to power it, leading many analysts to assume somewhere in the southwest U.S., such as New Mexico.

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Read/Post Comments (6) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 25, 2014, at 10:54 AM, Ustauber wrote:


  • Report this Comment On February 25, 2014, at 11:41 AM, anfitrion wrote:

    Two points:

    1. To project that all the battery manufacturers in the world, who have created and developed Li Ion technology, are not all that good at it, and need wonderboy to step in and build his gigafactory and show them how to really make batteries, is laughable. (BTW, GIGA means billion, so a gigafactory is a billionFactory, whatever that is suppose to mean)

    2. Tesla does not manufacture cars, it ASSEMBLES them. Tesla does NOT manufacture tires wheels bearings ball joints tie rods differentials brake assemblies power steering systems cables wires computers LCD screens net browsers headlights tail lights wiper motors windows window motors seats… in fact they do not even manufacture their main electric motor or batteries. Tesla BUYS all the components from other car component manufacturers and assembles them on their frame and body.

    Other car companies buy the same components from suppliers in quantities over a thousand fold of what Tesla is buying. Tesla will never match the price the big car companies are getting, therefore Tesla will never sell cars for less than $100,000 on average.

    Tesla electric cars will remain a niche, and the pre,ium electric vehicle niche will soon be crowded:

    But let the media-hype fireworks continue for a while.

  • Report this Comment On February 25, 2014, at 11:42 AM, pondee619 wrote:

    "Wish you could have gotten in Tesla on the ground floor?"..." The real trick is to find a small-cap..." And then hang on to it beyond all reason?

    A tale of glee and woe.

    Once upon a time, about two years ago, an intrepid investor, me, looked upon a new auto company with curiosity and hope. The new company (TSLA) made pure electric vehicles that were powerful, good looking and could travel further on a charge than anything else on the market. The intrepid investor to a position in the stock (at about $33) and patiently bided his time.

    Wonders of wonders, the public later saw what our hero thought he saw and the stock climbed to a triple, over $100. Being well trained in the zen of Fooldom, our hero sold off 1/3 of his original position, making his total at risk, in the remaining 2/3, zero. All this while expecting to continue to increase this revised position once the stock came back to earth a little. Never did happen.

    I did mention that this is a tale of glee and woe, right? Glee in that my 2/3 holdings are worth over 850% of my oringial cost, netting out to a zero cost. Woe in that 1/3 taken off the table and losing that last $150 per.

    Our hero has heard tell that no one ever went broke taking a profit. That may well be so, but the 1/3 sold made more since the sale (to the buyer at that "extravagant" price) than the profit he took.

    Is the real trick to making a large sum in this game finding a small cap stock, watching it grow explosively and hanging on beyond all reason?

    It appears that the game is designed to hurt. Sometimes it hurts alot and you actually lose your money. Sometimes it hurts, but not so much, when you realized that doing the "smart" thing significantly cut your gains.

    At least our hero didn't sell it all. Yeah, I know, there are lots of people who like to have had my problem. I sold Amazon because I thought it was over priced.

    "Trees don't grow to the sky". Looks like some might?

  • Report this Comment On February 25, 2014, at 11:54 AM, cobraman69 wrote:


    1. Can't 'giga' also mean gigantic? I think that's what Musk is implying by saying gigafactory.

    2. So Ford, Chevy and just about everyone else is not a 'manufacturer' either, since they also get most of their parts from other suppliers? Tell them that they're all just assemblers then.

    Why be so negative? Let's hope they can match the big players in price so that this concept can be a reality for all. If it does happen, it will be a great time for humanity. I for one am hopeful that Tesla will be successful since I want and hope for better things for our world. Ideas like Tesla's should be something we root for, not something we like to tear down and dismiss. Do you really want to be driving an ICE vehicle forever?

  • Report this Comment On February 25, 2014, at 12:15 PM, Monclover wrote:

    Battery technology has bottomed-out. There is no longer any further advancements to be made. On top of that, Tesla doesn't have the means to make any investment in battery technology. There are also a number of battery producers so Tesla is again fighting strong headwinds along with trying to compete with the big boys who far outsell Tesla and will continue that trend. Tesla like a number of others who attempted to compete against the big auto makers will fail and join others in the dustbin of automotive history.

  • Report this Comment On February 25, 2014, at 3:32 PM, pondee619 wrote:



    "Everything is up to date in Kansas City;

    They gone just about as fer as they can go."

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