Tesla’s Gigafactory: Guessing Games

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James Montgomery

Tesla Motors (NASD:TSLA) made a splash last week with its proposed $5 billion “Gigafactory” and its eye-popping numbers: a 10 million square foot facility on an entire land area of 500-1,000 acres, with output of 35 GWh/year of battery cells and 50 GWh/year of battery packs by 2020. That’ll be enough to support 500,000 of the company’s forthcoming Gen-3 vehicles, compared with a little over 20,000 annual demand for its cars today. By comparison, the entire lithium-ion battery supply-chain produced about 34 GWh in 2013, the vast amount going not to electric vehicles but consumer electronics.

That’s a very big bet on future demand, so it makes sense for Tesla to have other plans in case the market doesn’t quite take off and it’s stuck with overcapacity. The answer: allocate some of that capacity to stationary energy storage systems for backup power, peak demand reduction, demand response, and wholesale electric market services. Speaking at a California Public Utilities Commission thought-leader panel, Musk reiterated that an unspecified amount of Gigafactory’s capacity will be earmarked for “large-scale use of stationary storage.” Since last year Tesla has been contributing batteries to SolarCity (NASD:SCTY) for incorporation into solar + energy storage systems for both residential and commercial customers. (Expansion of solar and wind, Musk added, is causing “strife” for existing utilities.)

The key to Gigafactory, for either cars or stationary storage applications, is in its sheer scale which is hoped to compress costs right from the start. Tesla says it will reduce battery pack cost/kWh by more than 30 percent by the time its third-generation vehicles ramp in 2017. Battery systems for stationary energy storage applications are a bit different air-cooled, a simpler battery management system, and it’s all around a lot cheaper. It’s not uncommon among Asian manufactures to have multiple variations of a battery cell coming off individual lines, pointed out Sam Jaffe, senior research analyst at Navigant Research. There’s also the possibility that the company could tweak its battery chemistry used in Gigafactory, though probably still a variant of lithium-ion. A Tesla spokesperson declined to comment on any Gigafactory specifics.

Battery production by manufacturer

Credit: Tesla

Nor did the company explain the proposed gap between Gigafactory’s 35 GWh in annual battery cell output vs. 50 GWh in battery packs. There hasn’t been any confirmation of who Tesla’s major partners will be in this new Gigafactory, but it’s widely assumed that longtime battery cell partner Panasonic will be in, and maybe bring some of its supply-chain friends. Tesla and Panasonic have a long and deep connection, almost to the point of mutual codependency; it’s the opposite of typical multi-sourcing strategy seen in other industries, and it’s hard to imagine it *not* continuing with this Gigafactory. On the other hand, it’s possible that Tesla is smartly keeping its cell supplier options open, in the belief that sheer volume will override its need to slash costs and dent suppliers’ margins. “That’s a really fine line to walk,” Jaffe observed.

There’s another angle here relevant to renewable energy: Tesla says it wants to “heavily power” the new factory with solar and wind. Battery manufacturing is very energy-intensive, running ovens and manufacturing equipment and charging the batteries at least one cycle as a final step, explained Jaffe. That equates to usage in the hundreds of megawatts. A drawing in the slide presentation shows both solar and wind farms located adjacent to the factory. One also could speculate that they could achieve that by purchasing RECs or by investing like Google (NASD:GOOG) in someone else’s developments.

Where to put this massive factory is still being decided, but the shortlist is Texas, Arizona, New Mexico, and Nevada. The San Jose Mercury News‘ Dana Hull neatly handicapped the field and lists some advantages: the company’s previous facilities-tirekicking in Arizona and New Mexico, proximity to rail and possibly Apple and some other energy-storage-hungry industries.) Certainly those U.S. Southwest locations favor solar energy; overlaid with strong wind energy areas might narrow that a bit further. Gigafactory construction is pledged to begin by this fall according to those same slides; it’s not clear whether that includes the solar/wind contribution. Such utility-scale projects don’t simply materialize in a couple of months, however, so one could speculate that a factor in Gigafactory’s final location selection might be siting near existing projects or ones already well down the development path.

Jim Montgomery is Associate Editor for RenewableEnergyWorld.com, covering the solar and wind beats. He previously was news editor for Solid State Technology and Photovoltaics World, and has covered semiconductor manufacturing and related industries, renewable energy and industrial lasers since 2003. His work has earned both internal awards and an Azbee Award from the American Society of Business Press Editors. Jim has 15 years of experience in producing websites and e-Newsletters in various technology.

This article was first published on RenewableEnergyWorld.com, and is reprinted with permission.

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