Tesla Motors, Inc.'s Big Gigafactory Aspirations

Curating Tesla's comments on the Gigafactory, here are the key details investors need to know.

May 18, 2014 at 11:31AM

How do you build enough fully electric Tesla's (NASDAQ:TSLA) to go mass market when the world doesn't supply even half the needed lithium-ion batteries to get started? You build a factory large enough to house all of the earth's current lithium-ion production under one roof. It's a daunting task. But Tesla isn't hesitating. Big aspirations and big bets are commonplace under Elon Musk's leadership. Here's the latest on the company's Gigafactory plans.

Tsla Model S

Tesla Model S. Source: Tesla Motors.

The basics
The talk about a Gigafactory began during Tesla's third-quarter 2013 earnings call. While Tesla's timeline on the factory was still up in the air, it was able to provide one of the best descriptions of the process to date:

This is going to be a very green factory. There is going to be a lot of solar power. It's going to have essentially zero emissions and there are no toxic elements that are going to come out of this factory and we will build in recycling capability right into the factory. So, old packs would come in one side and get reprocessed as new packs.

With the Gigafactory, battery pack production is entirely vertically integrated so that Tesla can benefit from some massive scale advantages. Tesla explained in a document that further detailed the factory, which it shared with investors after the Q4 results were released earlier this year, that it expects to cut battery pack cost by 30% in 2017. That's the year it plans to begin production of its mass market EV -- the cost reduction would make Tesla's planned affordable third-generation vehicle possible.


Rendering of Tesla's planned Gigafactory. Source: Tesla Motors.

Just how capable will the Gigafactory be? Tesla believes the factory will enable it to produce as many as 500,000 vehicles per year by 2020. Comparatively, that would make last year's 22,500 Model S sales almost insignificant.

Recent updates
With Musk speaking about the Gigafactory several times since the Q3 earnings call, new details are surfacing. Importantly, Tesla won't be going at the project alone. Tesla said in its first-quarter earnings call that Panasonic had signed a letter of intent to partner in the factory. And Tesla is going even further to minimize risk of the $4 billion-$5 billion project by planning to break ground on two sites. The rationale? Tesla Chief Technology Officer broke it down for investors in the Q1 earnings call: 

I think as Elon has said a few times, for us, it's really critical that we have the first Gigafactory ready on time to supply the sales for Gen three. And that delay, every one-month delay at that point is far more expensive for us than the incremental costs that we may incur up front to kick off two sites at one time.

Most recently, Musk said this week during an on-stage interview at the World Energy Innovation Forum with venture capitalist and Tesla director Ira Ehrenpreis (via San Jose Mercury News) that he thinks Tesla will "probably do better than 30% cost reduction," with battery packs made in the Gigafactory.

Vertical integration, Musk explained in the interview that took place at Tesla's Fremont factory on Wednesday, is key to the cost savings.

You'll have stuff coming directly from the mine, getting on a rail car and getting delivered to the factory, with finished battery packs coming out the other side. The cost-compression potential is quite high if you are willing to go all the way down the supply chain.

While there is certainly risk to the Gigafactory, Panasonic's intent to partner, a plan to break ground at multiple sites, and Tesla's confidence about the effect on cost reduction all incrementally help provide greater conviction that the project will have a successful outcome.

The biggest thing to come out of Silicon Valley in years
If you thought the iPod, the iPhone, and the iPad were amazing, just wait until you see this. One hundred of Apple's top engineers are busy building one in a secret lab. And an ABI Research report predicts 485 million of them could be sold over the next decade. But you can invest in it right now... for just a fraction of the price of AAPL stock. Click here to get the full story in this eye-opening new report.

Daniel Sparks 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers