Tesla's 'Gigafactory' To Produce More Than Car Batteries

Last week, Tesla announced that it would build a new "Gigafactory" to produce lithium-ion batteries at a rate able to support the manufacture of 500,000 electric cars per year. By 2020, the plant will be capable of producing as many lithium-ion batteries as the entire world produced in 2013.

The Gigafactory, Tesla says, will support 6,500 jobs directly, and according to a post on the company's blog, the company expects that volume manufacturing of its mass-market vehicle will drive down the cost-per-kWh of its batteries by 30 percent in the first year.

The mass-market vehicle, yet to be released, will be designated the Model E. According to a report in TechCrunch, it will be 20 percent smaller than the current Model S, with a target range of 200 miles. While that's fewer than the maximum range of the Model S, it's ahead of any other pure EV currently on the market. Cheaper batteries may be crucial in cutting costs sufficiently to allow the company to produce the more affordable car, but the new factory also plays into more diverse plans for the company.

Last week, the San Francisco Chronicle reported that as well as supporting vehicle battery production, documents filed with the Securities and Exchange Commission detailed that some of the lithium-ion batteries will be used for "stationary storage applications;" that is, batteries for storing energy for use in homes, commercial sites and utilities.

This makes sense, since Elon Musk, as well as heading Tesla, is also the chairman of California-based Solar City, an installer of solar energy systems to homes and businesses with a national reach. The Chronicle reports that the market for grid-scale storage could reach $30 billion by 2022, and a Morgan Stanley report published recently, argues the company could seize a commanding role in the the energy storage industry. Evidently, the new factory is more forward-thinking than just meeting EV production goals.

In the meantime, the location of the Gigafactory has yet to be determined, though Tesla has announced it will be in one of four possible states: Nevada, Arizona, Texas or New Mexico. According to USA Today, these "finalists" were chosen because each has both the climate and terrain suited for Tesla's plan to power the factory largely with a sprawling farm of solar panels and wind turbines. The plant will need up to 1,000 acres, or close to 2 square miles.

USA Today reports that competition among the four states has set off a bidding war to try to attract Tesla's business, stating that incentives being offered could reach new heights--including $200 to $400 million for site infrastructure and worker job training, and $300 to $600 million in tax breaks.

The choice of the winning state could also set up an interesting opportunity for Tesla to leverage some marketing opportunities, too. Many states, have challenged the legality of Tesla's direct-to-customer sales model, whereby the company side-steps dealership involvement in the sales process. Lawsuits have been filed in many states based on existing automotive franchise laws, and Texas is one such state that has disallowed the company to sell to customers directly. USA Today suggests Tesla might demand the state change its laws to take dealer middlemen out of the equation as part of a winning deal.

But wherever the factory lands, it will be expensive. Tesla plans on selling $1.6 billion in bonds to help finance the plant; the company will invest $2 billion, while speculation exists that Tesla's existing battery partner, Panasonic, might pitch in another $1 billion as well.

Image Credit: Sam Felder

Follow me on Twitter: @PhilCovBlog