Tesla Motors Inc. Does the Electric Slide As Plans for Its Gigafactory Accelerate

Tesla Motors will choose two of four states as the locations for its planned battery factory. But will it be enough to keep the electric-car maker's plans on schedule?

May 14, 2014 at 11:25AM

Investors pushed shares of Tesla Motors (NASDAQ:TSLA) down nearly 14% last week, despite the electric-car maker reporting better than expected results for its fiscal 2014 first quarter. The stock is currently trading around $185 a share, down from its 52-week high of $265. Yet, while investors pumped the brakes on Tesla's stock, the company's plans for its multibillion-dollar Gigafactory accelerated. Here are three key developments in Tesla's pursuit of building the biggest lithium-ion-battery plant in the world.

Two can play that game
Tesla never fails to shock and awe onlookers, and the latest news from the electric-car maker is no different. Tesla has decided to choose not one, but two states as the locations for its planned $5 billion Gigafactory. Tesla's chief executive Elon Musk said, "What we're going to do is move forward with more than one state, at least two, all the way to breaking ground, just in case there's last-minute issues," according to Bloomberg.

This could prove a prescient move on Musk's part, particularly because two of the four states currently in the running don't even allow Tesla to sell its zero-emission cars in their respective states. The EV maker has been locked in ongoing battles with traditional auto groups in various states including Texas and Arizona over the right to sell its vehicles directly to consumers.

Both Texas and Arizona currently have strict regulations in place that forbid manufacturer-owned dealerships. An Arizona senate panel approved a bill earlier this year that would enable Tesla to bypass auto franchise laws in the state. However, the proposed bill was shot down at the legislature. The fact that Tesla can't get states to budge on antiquated auto laws, despite putting a 10 million square foot facility and $5 billion in local investments on the table, proves just how powerful auto groups are today.

Nevertheless, Musk has proven adept at turning setbacks into opportunities. There is a lot at stake, no doubt. Tesla needs the Gigafactory in order to bring its third-generation electric car to market. Musk plans to make the Gen III Tesla's first mass market car by selling it at about half the base price of the Model S. Not only would the Gigafactory produce more lithium-ion batteries annually by 2020 than were produced worldwide last year, but it would also lower the cost of these batteries by more than 30% per cell. Tesla needs this cost advantage in order to offer a truly affordable mass market EV.

Screen Shot

Source: Tesla Motors

Given the importance of this massive battery plant, it makes sense that Tesla would choose more than one site for the early phases of development. However, Tesla will likely need to spend double what it had originally planned, at least in the initial stages to get this project off the ground. "We will end up spending more money than would otherwise be the case to minimize the timing risk," Musk told Bloomberg. During Tesla's earnings call with investors, Musk said he hopes to break ground on the first site for the Gigafactory next month.

A partner in crime
Another important development on the factory front is news that Panasonic signed a letter of intent to team with Tesla on its Gigafactory. Having Panasonic as a joint venture partner is a natural fit because Panasonic currently supplies Tesla's battery cells. However, Panasonic's president suggested to Bloomberg last month that the company wasn't fully committed to the Gigafactory. That seems to have changed, as Tesla now expects a signed agreement from Panasonic for the project by the end of 2014.

Lastly, Musk hinted that Tesla might achieve battery cost savings in excess of 30% per kilowatt-hour from the Gigafactory. "As we explored the cost structure and the supply chain, we found that there's really a lot of opportunity for innovation and for cost reduction," he said.

From multiple location sites and strategic partnerships to the promise of producing cheaper battery cells, Musk seems bent on getting Tesla's Gigafactory up and running in record time. Many risks remain ahead, no doubt. However, if Tesla begins battery production by 2017 as promised, then perhaps investors could see the stock return to its former highs as a result.

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Tamara Rutter owns shares of Tesla Motors. The Motley Fool recommends Tesla Motors. The Motley Fool owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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