Tesla Motors (TSLA 4.96%) is calling it the Gigafactory. The electric-car maker estimates that the $5 billion factory will boast lithium-ion battery production that by 2020 will exceed the entire world's 2013 lithium-ion battery production. The factory, Tesla says, is necessary for the company to bring the economies of scale to batteries that will enable Tesla to launch an electric vehicle at half the price of its Model S by 2017, one that will be disruptively aimed at the mass market. Citing the Gigafactory among the key reasons, Morgan Stanley analyst Adam Jonas is calling Tesla "the most important car company in the world."

Tesla's Fremont, California, factory produces vehicles as fast as it can. Limited only by supply, with the main bottleneck being lithium-ion batteries, Tesla hopes its Gigafactory can help make the company a mass-market player. Image source: Tesla.

While Tesla's bold move with the Gigafactory certainly comes with its fair share of risk, the risk to those in the auto industry overlooking its potential may be far greater -- colossal, even. Fortunately for investors, there is still a way to profit from this potential revolution.

The beginnings of disruption
After the electric-car maker narrowed its prospective locations for the site down to five states, the finalists competed viciously for several months to land the enormous factory. There was a sense of desperation as Texas, California, Nevada, New Mexico, and Arizona vied for what could be the beginning of a revolution that could flip the auto industry upside down.

Texas Governor Rick Perry went as far as driving a luxury Tesla Model S sedan around in California. California State Senator Ted Gaines even showed up at Tesla's Palo Alto headquarters with a golden shovel. And the offers presented by the different states behind closed doors were probably all worth hundreds of millions of dollars.

Of course, it's no surprise that government officials went to great lengths in their attempts to convince Tesla to make their state home to the Gigafactory; the factory will bring 6,500 jobs. And experts have predicted the location could help add $100 billion of value to the wining state's economy over a span of 20 years.

Rendering of planned Gigafactory. Source: Tesla Motors.

Nevada finally won Tesla's race for the Gigafactory home in early September with the help of an incentive package with an estimated value of $1.25 billion. But Tesla, whose first principle in the defining values of its "Tesla Culture" is "Move Fast," had actually already broken ground on the factory in the first half of July, keeping the heavily guarded construction quiet until the company's second-quarter conference call on July 31. 

Why was Tesla building the Gigafactory in Nevada before the company officially chose the state for the final location?

"If we don't have the Gigafactory online when we have the vehicle capacity online we'll actually be in deep trouble," Tesla CEO Elon Musk said during the company's first-quarter conference call in May. He went on to explain that the risk of not having the Gigafactory ready by the time its lower-cost Model 3 is ready was greater than the risk of starting construction on a site that may not have ended up being the official location. In fact, Musk said he was even willing to break ground in multiple locations to reduce the probability of any delays.

The biggest transformation the automotive industry may ever see
The potential for the Gigafactory is enormous. In fact, it could serve as the first step in making electric cars more compelling than the internal combustion vehicles we know today. Consider these two items that quickly put the massive potential of the Gigafactory into perspective:

Back of Model S. Image source: Tesla Motors.

500,000 vehicles: This year, Tesla plans to deliver just 35,000 vehicles. But with the help of the Gigafactory -- which should be complete by 2017 -- and a launch of its Model 3 around the same time, Tesla hopes to ramp up its global sales to 500,000 vehicles per year by 2020.

Half a million vehicles is no small sum. Consider that General Motors' total global sales in 2013 were 9.7 million. At these levels, Tesla may be stealing meaningful sales from competitors. Furthermore, if Tesla can truly grow its sales from 35,000 to 500,000 in just six years, what's to stop the electric-car maker from taking its winning formula one step further with another Gigafactory and more new models -- perhaps helping Tesla reach annual sales that exceed 1 million vehicles in less than 10 years? Even more, if Tesla can prove it can sell 500,000 vehicles per year, other automakers may join in to help spur the transition to electric vehicles -- a move that would most likely benefit Tesla, not hurt it.

$100 per kilowatt hour: During Tesla's second-quarter 2014 earnings call, Musk offered up a thought-provoking prediction that has game-changing implications. "I'd be disappointed if it took us 10 years to get to $100 [for] a kilowatt-hour pack," Musk said during the Q&A portion of the call.

Deutsche Bank analyst Rod Lache, who upgraded his price target for Tesla stock from $220 to $310 after the call, seemed shocked. "So, basically you're saying that, you know, within the next -- within that time frame you would expect electric vehicles to reach cost parity and maybe even improve upon the cost of an internal combustion vehicle?"

"Yeah," Musk responded.

"Uh-huh. That's interesting ... that's a pretty big statement," Lache mused.

But, for Musk, this seemed to be old news: "Seems pretty obvious to me."

This commentary highlights how Tesla's estimate of a minimum of a 30% cost reduction for lithium-ion batteries by 2017 (when the Gigafactory is supposed to go live) really is just a minimum -- not the target. More important, this prediction shows that, according to Tesla, this 30% cost reduction by 2017 is just the beginning.

Model S and an early prototype of Tesla's Model X SUV (launching next year). Source: Tesla Motors.

As Lache suggested, a cost of $100 per kilowatt hour would mean that compelling electric vehicles with meaningful range could be more cost-efficient to manufacturers than internal-combustion-engine vehicles. Such an achievement could lead to disruption in the automotive industry at mass scale.

But Musk insists that this is exactly where electric vehicles are headed.

"It's heading to a place of no contest with respect to gas," Musk boldly predicted.

The opportunity
Reflecting the market's confidence in Tesla's story, the growth company's stock isn't cheap. Tesla's market capitalization currently sits at just over half of General Motors'. So, investors looking for a bargain may be prone to overlook Tesla as an opportunity for their portfolio. However, the best companies with the greatest potential rarely trade at prices that appear to be discounts. With this in mind, before investors fret over the company's wild valuation, they should take a closer look at Tesla's monstrous growth potential and give it the weight it deserves. If Tesla really can outline a compelling value proposition with a vehicle aimed at the mass market, it's likely that we are looking at the beginning of a revolution.