Tesla Gigafactory

Tesla Motors’ CEO Elon Musk says that this week, he will detail his plans to build a huge plant to make electric car batteries — so big that he calls it the “gigafactory.” Compared with Tesla’s swoopy electric luxury cars, making lithium-ion battery packs sounds decidedly unsexy. But Tesla apparently views the plant as critical to its strategy. Reasons:

• Steady supply. Tesla will make the case that it needs its own source of battery packs. It has made no secret of its inability to get enough batteries through its deal with Panasonic to keep up with demand for its Model S electric sedan. It says the current shortage will last through the first half of the year.
• Other revenue streams. The plant could supply batteries to other carmakers and for other uses. Musk also is chairman of SolarCity, which has announced plans to sell Tesla battery packs to companies to use for emergency backup power storage.
• Future models. Tesla is developing a more mainstream electric car for sale in several years. But it will need to dramatically lower battery costs and increase supply to create a mass-market vehicle.

Musk told analysts last week that he expects “there’d be more than one partner in the plant,” noting that Panasonic already is Tesla’s chief battery supplier. But his comment came days after it was reported that Musk met with Apple last year, raising speculation about whether the computer giant might be looking for a partner for its battery needs. As to where the plant and its jobs would land, Musk assured the analysts that the gigafactory will be “heavily powered by renewables, wind and solar, ” which would seem to point to a desert location in the West. Some question the need for more battery-making capacity. A 2012 study by consultants Roland Berger found overcapacity for the large-format lithium-ion battery market, and a couple of big makers have gone through bankruptcy reorganization. But Tesla uses a different battery pack design than most other makers, and electric car sales have grown. The number of plug-in cars sold last year almost doubled from the previous year to 96,702, the Electric Drive Transportation Association reports.

Analysts also are weighing the implications for Tesla. Efraim Levy, equity analyst for S&P Capital IQ, worries that a Tesla-owned plant would lock the automaker into a single battery type, making it difficult to pivot if a more promising technology emerges. But Barclays analyst Brian Johnson notes that the cost of building the factory could be offset by creating new revenue for Tesla in marketing its batteries to other companies.