Why Does Tesla Need a Battery Giga Factory?

MAY 22 2014 BY ERIC LOVEDAY 33

Tesla Model S

Tesla Model S

The Tesla Model S At The 2014 NAIAS

The Tesla Model S At The 2014 NAIAS

There’s been much discussion as of late focused on Tesla’s battery giga factory.  Some say the idea is too big for even Tesla to pull off.  While others believe Tesla can’t move forward to Gen 3 without the giga factory.

Oftentimes, the discussion centers on getting down costs, as in without the giga factory, Gen 3 would be too expensive, but there are often-overlooked reasons why Tesla need this battery factory:

Steady, consistent and reliable supply: 

Without the giga factory, Tesla is at the mercy of Panasonic’s ability to keep pace.  Panasonic itself has struggled financially in recent years and prior to the Tesla deal, Panasonic seemed to be nearing the brink of failure.  At present, Tesla would possibly fail if Panasonic did.  This is not a situation Tesla Motors wants to be in.

Other source of revenue: 

In theory, once the giga factory is up to capacity, Tesla could sell cells to other battery assemblers or sell completed battery packs to automakers, energy storage companies and so on.  This could be highly lucrative for Tesla Motors.

Research and development:

Currently, Tesla relies on Panasonic to push the envelope.  Panasonic research and development budget dictates how much money goes towards advancement of battery technology.  With the giga factory, Tesla would have its own battery research and development division and we’re certain Tesla would pour a significant amount of money into it.

We realize this is not an exhaustive list.  There are reasons both for and against the Tesla battery giga factory.  However, it needs to be pointed out that driving down costs is not the sole reason for the giga factory.  As a matter of fact, that’s probably low on Tesla’s priority list for the giga factory.  More important is, without a doubt, steady supply.  Then perhaps more revenue.  Then future battery tech.  And somewhere is the mix is driving down costs.

At least that’s the way we see it.

Categories: Battery Tech, General

Tags: ,

Leave a Reply

33 Comments on "Why Does Tesla Need a Battery Giga Factory?"

newest oldest most voted

This is exactly right. Panasonic supplies other Japanese companies first, so if there is a supply shortage, Tesla gets the shaft.

Well, whole worldwide li-ion batteries production in 2012 was 12 GWh. Tesla would need north of 30 GWh for Gen3. That is the reason.

I agree that there are more reasons than just driving down costs, but the cost is a major factor.

I have a feeling that battery suppliers were unwilling to create the capacity that Tesla is demanding. Or possibly were raising pricing to cover the cost of expansion.

Either way, battery tech will move faster if Tesla has an active role in the whole chain. Nissan is the only other auto maker that has taken an active role in battery production technology.

I think that is one of the biggest issues: no company was willing to scale up that much for 1 customer.

Good questions, but incorrect assumptions.

Panasonic’ failure would NOT see the death of Tesla, they are other battery manufacturers who would be glad for the business. Indeed, a steady stable and consistent supply is needed, not 3 years from now, but NOW with Model S supply being unable to keep up with demand.

Agreed, Tesla could become a major player in the battery manufacture business, but there are risks. Unless that gigaplant is designed to be flexible to allow for improvement in battery technologies, it will quickly become irrelevant or obsolete. What if they designed for Li battery manufacture and the world shift to…………oh let’s say superconductors!!!

It’s risk well worth taking as the pay-off in the medium term look promising, it’s the long term prospects that I would be worried about and planning to mitigate for rapidly changing technologies, even if it’s not battery tech.

Yeah, in fact, it’s the other way around: Tesla saved Panasonic.

You mean a single division of Panasonic.

A lot of people here overestimate how much revenue Panasonic gets from Tesla, and underestimate how enormous of a company Panasonic is.

Right – the company was heading downhill, but then the Model S started selling, production ramped up, announcements of additional agreements for supplying more cells, and all of a sudden, Panasonic’s stock jumped to double-digits, and has been holding there ever since…the other, poorly-performing divisions are holding Panasonic back.

From the last conference call, Elon described the GF in terms of a “industrial park under one roof” which to me leads not automatically assume that Tesla is the one doing the staffing and running all the equipment.

I don’t know how much R&D work Tesla will do though in the cell chemistry aspect of things. That is best left to the manufacturers and many start-ups working to make better, cheaper cells. Tesla’s R&D focus is on cell validation and module/pack engineering.

In the past week InsideEVs has run two stories of delivery delays due to battery supply constraints:

Tesla Model S US Deliveries Pushed Back Several Months For Global Expansion
http://insideevs.com/tesla-model-s-us-deliveries-pushed-back-several-months/

Tesla Model S Delivery Delays In China Lead To Protests
http://insideevs.com/tesla-model-s-delivery-delays-china-lead-protests/

Further …
“Musk said that the gigafactory will drive battery costs down by more than 30 percent.”
http://www.mercurynews.com/business/ci_25761219/tesla-ceo-elon-musk-gigafactory-will-take-battery

Makes the question mute … Tesla could use a Gigafactory now, already. In part to ensure on-time deliveries, but to increase profit margins to be cashflow positive regardless of accounting method used.

What about a partner, next to Tesla, on the demand side? Nissan and GM do their own batteries. If Samsung/Panasonic don’t want to swallow the risk, could some other cash-flush company jump in? It could be a utility. It could be Buffet. Very interesting to think about.

*moot

Sorry…it was bugging me…no offense meant…

It was bugging me too Tom 🙂

For a car company, it really does not make sense to outsource a component that is about half of the value of the car. This is the primary reason why Tesla needs gigafactory.

Secondary reason is that according to the most recent estimates, Tesla is anticipating up to 50 % cost savings due to simpler component supply chain and scale benefits. This is very significant expected reduction in costs by 2017! This does not include potential improvements on battery chemistry and cell engineering. Just simple scale benefits of gigafactory.

Tesla and other car companies will also be the primary manufacturers of batteries for grid storage markets. And the market potential for grid storage is huge in 2020’s.

Barclays reduced the US utility sector to ‘Underweight’, this week. They cited Hawaii having reached not just solar parity, but solar plus grid storage parity, with possibilities in CA in 2017/18. HI rates are high, (~$.35/kwh). My take is that Musk’s conglomerate contribution to an industry pace of ~4+GWH will have uses that likely build into their future cash flow analysis. There are some synergies with Solar City, when it comes to the tail of useful automotive battery life. Lead-acid may be cheaper, but the key could be how used Li-ion sets its own price, on supply.

The Hawai’ian islands could readily power themselves entirely off of the Sun with appropriate storage. Shipping oil thousands of miles in big tankers just to burn in their power plants has to be one of the worst possible arrangements (unless it was coal), not only for environmental concerns, but also for sheer cost.

And, the islands are small enough that you wouldn’t need Teslas, either (except for fun!). Leafs and these other compliance vehicles would do the trick quite well.

And the big island could also harness geothermal (at least I assume so, with an active volcano and all that…).

They also have plenty of wind.

I don’t think the markets are the same.

Tesla needs ~1000 cycles lifetime, prefers 200+ Wh/kg, and is competing with 30c per mechanical kWh gasoline. The grid needs 10,000 cycles and 25 year lifetime, couldn’t care less about density, and competes with a couple pennies per kWh for stationary storage.

Lead-acid is being surpassed by Zinc now:
http://www.eosenergystorage.com/technology-and-products/

Because the gigafactory is making batteries with a different optimization, its application in stationary storage will be limited, e.g. individuals wanting to go off grid and seeking a slick retail package.

Sorry, wasn’t thinking straight:
“competes with a couple pennies per kWh for stationary storage.”

Meant to say:
“competes with a couple pennies per kWh premium for dynamic peaker generation”

I think that utilities will eventually become non-profit government entities that just manage the grid and provide peaker generation when the wind, sun, hydro, and contracted private generators can’t provide enough.

The current business model is going to fall apart when too many people install their own solar, wind, fuel cells, etc.

Utilities should have always been that way – just like water and sewer systems – particularly today, when electricity is almost as necessary as oxygen.

A lot of good discussions here. Contrast that to the recent Wall Street Journal article with the same headline “Why does Tesla need a Gigafactory?”

The article cited “experts” who all shot down what Tesla is trying to do. These so-called experts are…
1) A professor
2) Some former Toyota Prius USA sales manager.
3) A loser from the loser A123 battery company.
They even dared to make comments like “If I were Tesla, I’d do this….”

WSJ is extremely HOSTILE to Tesla and Solar.

Lol, you are certainly dismissive regarding the ‘professor’ as if he was just some nobody rather than someone who was one of the first to demonstrate and develop lithium ion batteries and is the inventor of lithium air batteries.

You term this person a “so called expert”.

Perhaps in the future you should check your facts before inserting your foot in your mouth

* K.M. Abraham is a research professor at the Northeastern University Center for Renewable Energy Technology, has worked for 30 years on lithium battery technology, was one of the first to demonstrate rechargeable lithium batteries and invented next-generation lithium air batteries. Holds 16 patents,

So, what you are saying is that he is a Li-ion battery expert. That doesn’t mean he is a business expert.

CherylG has always been hostile towards Tesla. Any relation to Martin Eberhard, there, Cheryl??

There is a word for companies that consistently decide to take over business from their suppliers:

Dead.

If adoption of EV’s keeps going the way it does, doubling every year, Elon is right, we are going to need many, many gigafactories not only for Tesla but for other companies as well….

Doubling every year? Where? Look at the run rate of the monthly scorecard at the top of this page. Compute this year’s growth of plug ins. Do you see doubling? I want growth but this year is not shaping up for doubling or even 25% US sales growth. It has to pick up or this year could be flat.

Yes think ev sales will double every year, see this;
2012 sales 52k
2013 sales 97k
The 4 first months representing only 20% of total year sales in both of those years, it’s fair to assume it will be the same for 2014 so 30k times 5 is 150k. Add to that BMW i3’s (insert your number here), Sparks… nationwide? Plus probably a few more and you are very close to doubling every year. How many new models in 2015?
Yeah!, i say it doubles…. but we’ll see.

http://insideevs.com/monthly-plug-in-sales-scorecard/

I still think the main reason is to get a price reduction to make Model E viable.

Steady, consistent and reliable supply – OK, I can see this a bit.

Other source of revenue – I don’t see the energy storage market as very big. And I think other car makers would be very reluctant to depend on Tesla as a supplier. That was fine for some compliance cars but you really don’t want to be dependent on you competitor.

Research and development – I don’t see this as their business.

Driving down battery costs for future Tesla models…and yes, mass producing energy storage units for housing and commercial building with solar panels. What a great way to get all of us off the antiquated grid.