Back on February 26th, the official blog of Tesla Motors reported on the electric vehicle (EV) automaker’s plans to build a lithium-ion “Gigafactory” in the not-too-distant future. In fact, Tesla expects its future battery facility to make, all on its own, more batteries in 2020 than those made by all lithium-ion producers combined in 2013.
In a presentation it released to the public, Tesla details its expectation that in 2020, the factory will serve the battery needs of up to 500,000 new EVs annually, producing a battery cell output of approximately 35 gigawatt hours and a pack output of approximately 50 gigawatt hours. Moreover and most importantly , the factory is expected to reduce overall battery pack costs by more than 30 percent by as early as 2017.
This expected drop in battery cost is critical to the wide-scale adoption of Tesla’s first mass-market, affordable EV, which the company coincidentally expects to be released in 2017. Automakers have been shy in disclosing how much of their EV production costs are attributable to lithium-ion batteries, but everyone who knows the industry, knows that they are incredibly expensive. According to McKinsey & Company, batteries cost $500-$600 per kilowatt-hour, accounting for about a whopping one third of an EV’s retail price. If Tesla can reduce battery costs by more than 30 percent, it will cut the cost of its cars by thousands of dollars and significantly boost demand for them.
A battery “Gigafactory,” has another huge benefit for Tesla, business diversification. While the EV industry is a growing one with a promising future, it still faces risks. High vehicle costs in the short-term are restricting EV adoption, and forecasts of future growth may fall short. However, the global lithium-ion battery market presents a huge opportunity and is expected to surpass $25 billion in 2017. If Tesla is smart (and able) they may design their factory so that it can produce batteries that may be sold to other automakers and other lithium-ion powered products. Taking advantage of the multibillion dollar lithium-ion market will reduce risks for Tesla and greatly expand the company’s business opportunities.
To make its “Gigafactory” dream a reality, Tesla will invest $2 billion into the project and anticipates its partners to contribute an additional $2-3 billion. It is also in the process of finalizing the factory’s siting, considering locations in Arizona, Nevada, New Mexico, and Texas. Ultimately, Tesla is planning for the design, construction, and outfitting of its battery factory to continue over the next three years, before the facility begins production in early 2017.
Tesla’s evolution over the past few years has been nothing short of remarkable. From introducing the Tesla Roadster and its first EV in 2008 to mass producing the Model S, 2013’s Motor Trend Car of the Year, Tesla has grown dramatically. Now, as it plans to sell its second mass-produced vehicle, the Model X, introduce a mass-market EV, and build a massive battery factory in the next three years, Tesla is pioneering the Country’s path toward sustainable, electrified transportation.