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Tesla (TSLA 1.69%) 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.
