After months of testings, Musk's biggest-ever factory is finally here and ready to equip thousands of pre-ordered Model 3 vehicles that are due in production already this year.
Tesla announced late yesterday that one of Musk's most ambitious business projects, the $5 billion Gigafactory, has finally come into reality. The battery cell production plant is a joint effort of Tesla (NASDAQ: Tesla Motors [TSLA]) and Panasonic (TYO: 6752) that was the company's partner in developing Tesla's own battery cell technology. Tesla says that the result of this partnership, "the high performance cylindrical 2170 battery", is the company's answer to the problem of huge production needs and high market prices of battery cells currently produced by rivals.
At the moment, only 30% of the entire 4.9 million square foot factory is finished but the Gigafactory is capable of producing the first batch of Tesla's own battery cells already now. The first cells produced at the Gigafactory will be used in Tesla's Powerwall and Powerpack, for a start. Yet later, the company will begin the production of cells needed for the Model 3 vehicles. As Tesla explained, they decided to use a "phased approach" that will allow them to start small and then expand to the full capacity in the process.
Musk's plans for the Gigafactory are as always ambitious:
"Model 3 cell production will follow in Q2 and by 2018, the Gigafactory will produce 35 GWh/year of lithium-ion battery cells, nearly as much as the rest of the entire world’s battery production combined," the company wrote in the statement.
It is hard to imagine a factory of the capacity described by Elon Musk, but Bloomberg experts suggest that Tesla simply has no other choice than to build its own factory that is able to produce battery cells at this rate. Considering that Tesla received almost 400,000 pre-orders on its Model 3 last year and plans to sell half a million of Model 3 vehicles by 2018, there is just not enough batteries produced anywhere in the world to equip all the cars. Another problem is that at the price of $35,000 per car, the current prices of battery cells marketed by others, mostly Asian manufacturers, are way too high to make Model 3 any profitable for Tesla.
That is why, yesterday's announcement was received by Tesla's investors with a sigh of relief, as the Gigafactory remains one of the projects that are critical for the company's survival. Bloomberg said that opening the Gigafactory for production has "existential significance" for Tesla, knowing Musk's tendency to announce aggressive business projects with unattainable deadlines. The company has received a lot of criticism from experts and investors for consistently missing on the targets and promises it made over the last decade while demonstrating that the Gigafactory is well and running is important to convince investors that Tesla could deliver the promised Model 3s on schedule.
For now, Tesla's plan is, according to the statement, to work towards optimizing the production processes on the factory and locate everything "under one roof" in order to reduce the costs of battery cells.
"By bringing down the cost of batteries, we can make our products available to more and more people, allowing us to make the biggest possible impact on transitioning the world to sustainable energy," added the company.
Engadget said that Tesla plans to reduce the costs of its original batteries by as much as 30% by 2020 thanks to the economies of scale and optimization. At its full capacity, the factory's production power will be enough to manufacture 1.5 million cars per year. By the time the factory is complete, Musk expects it to become "the biggest building in the world". Next to that, despite relying on robots, Tesla promised to employ 6,500 people directly at the factory and also contribute to more than 20,000 jobs in surrounding areas in the state of Nevada.
Now that the first Gigafactory is "online", the rumours of Musk selecting a country in Europe for his next Gigafactory will most likely intensify. As we know, Finland was among the first European countries to step up in the last months.
As always, Tesla thinks big but investors are closely watching every Musk's step. The first Model 3 vehicles that are due in delivery this year will show whether Tesla can keep up with the race it created for itself.