Tesla Gigafactory Investor Thread

[tftf]

I see no point in filling a plant with machinery that you won't need for a few years.

I guess it depends on the ramp-up speed for the Gen III beyond initial deposits, the EV car market and infrastructure may be more mature by 2017-2018.

Analyst estimates are all over the map from 100k to 500k vehicles/year for the Gen III (my personal low-end estimate is 100k/year, below that it probably doesn't make sense to call the Gen III a "mass-market vehicle" and sell it at the promised price range of $30-40k base price).

So if TSLA sells 50-100k in year one, but plans 125-175k in year two and 200-250k in year three it might make sense to directly invest in a 250k battery supply.

Also depends if TSLA continues to source Model S and X batteries from third-parties (Panasonic, Samsung, LG...) or will do all in-house once the factory is ready. Even if switching to one internal source is cheaper it might make sense to keep the external suppliers for the "older" car models to mitigate supply chain risk.

As we have seen with Mitsubishi (battery testing recall/delay of PHEV Outlander, delay in international sales of 1-2 years) and Nissan (slow ramp-up in U.S. LEAF battery factory took over 6 months in 2013, only resolved by January 2014) battery delays and production issues are hard to solve in short time frames.

In the case of TSLA Gen III we are also talking much bigger numbers than existing plants from competitors (probably over two billion cells per year if they stay with 18650 cells).

 

[JRP3]

If there is a 6 month line equipment lead time as I've been told I'm not sure why it would need to be in place sitting there doing nothing for 2-3 years.

 

[tftf]

If there is a 6 month line equipment lead time as I've been told I'm not sure why it would need to be in place sitting there doing nothing for 2-3 years.

It could be Nissan took a very long time for whatever reasons/problems to finish their newest U.S. plant and then face expansion delays in 2013. I took their numbers.

It's hard to get recent comparable figures and timelines except for AESC (NEC-Nissan) and Panasonic, there aren't so many large plants built for EV batteries. Yes, expansion(s) could take "only" a few months, but as I noted, the numbers involved (billions of cells) are huge in comparison to existing plants.

At least some people are beginning to discuss this when looking at the 10-Q:

Long-term battery concerns

In October 2013 Tesla struck an agreement with Panasonic to provide a minimum of 1.8 billion lithium-ion batteries between 2014 and 2017 with preferential prices.

To put this in context if a Tesla car needs 5,000 batteries (assuming better battery efficiencies and fewer used in a Gen III) and Panasonic provides 2 billion batteries that is only enough for 400,000 cars over a four year period. While the supply will ramp over the four years this may only support 150,000 cars built in 2017. This is an example that shows Tesla needs billions of batteries per year to support the production projections analysts are using to develop target stock prices.

In the 10-Q Tesla states “While we continue to ramp production, in the near term the increase in cell capacity from our supplier is a key constraint that we are managing.” I believe the company can manage getting enough batteries even with a doubling or tripling of car production. The challenge will be getting enough batteries to support hundreds of thousands of cars per year.

This and scaling production twenty times or more are the biggest concerns I have for the company. It can still be successful at lower production levels than the half million that is discussed but any slippage will negatively impact the shares.

Analysis Of Tesla's September Quarter 10-Q - Forbes

I think most analysts covering TSLA with lofty price targets not modeling in the investments/critical battery timeline path should finally wake up as TSLA earlier said it will launch the Gen III car by late 2016 and ramp-up in 2017. That long list of analysts includes Deutsche Bank, Wedbush, Northland Capital, Barclays and last but not least Doughtery featuring super-bullish A. James.

If the Model S and X cars are moderately successful until 2017, there is no "left-over" battery supply for the Gen III car without more suppliers (that most likely won't be enough for a full Gen III production) or the giant plant.

My general assumptions for Gen III and "giga" factory buildouts:

- TSLA will build the Gen III in the current plant (dark space reserved for Model X and Gen III should be sufficient, at least in the beginning). An additional final assemply (similar to the existing one in the Netherlands for the EU) is added somewhere in SE Asia for or before the Gen III car launch.

- TSLA will maybe build the battery plant on the land (bought in 2013) next to their existing factory. It has good access (important for re-cycling of batteries etc.):

Tesla Motors buys test track in 35-acre deal - Silicon Valley Business Journal

I could be totally wrong of course and it's just for a test track or car factory expansion. And that concludes my estimates and forecasts

 

[kenliles]

It could be Nissan took a very long time for whatever reasons/problems to finish their newest U.S. plant and then face expansion delays in 2013. I took their numbers.

It's hard to get recent comparable figures and timelines except for AESC (NEC-Nissan) and Panasonic, there aren't so many large plants built for EV batteries. Yes, expansion(s) could take "only" a few months, but as I noted, the numbers involved (billions of cells) are huge in comparison to existing plants.

My general assumptions for Gen III and "giga" factory buildouts:

- TSLA will build the Gen III in the current plant (dark space reserved for Model X and Gen III should be sufficient, at least in the beginning). An additional final assemply (similar to the existing one in the Netherlands for the EU) is added somewhere in SE Asia for or before the Gen III car launch.

- TSLA will maybe build the battery plant on the land (bought in 2013) next to their existing factory. It has good access (important for re-cycling of batteries etc.):

Tesla Motors buys test track in 35-acre deal - Silicon Valley Business Journal

I could be totally wrong of course and it's just for a test track or car factory expansion. And that concludes my estimates and forecasts

I would estimate the actual build of the plant to be a few months, but minimal to the time required for the other efforts- sourcing and lining up materials, design, approval etc. I tend to agree the process will need to start end of next year, but actual plant build not until 1 year out from first production.

tftf - that Test Track land was only 35 acres though; was there another track or are you thinking that's sufficient?

 

[tftf]

tftf - that Test Track land was only 35 acres though; was there another track or are you thinking that's sufficient?

My main idea is that they will use this land (and maybe other parts they can buy near their plant) in addition to their existing factory space to build a battery plant or at least the logistics parts thanks to good road and train access.

Again using Nissan's plant as an example they will need quite a lot of space. Nissan claims their battery plant currently is the biggest in North America:

Planet Vehicle: Nissan EV Battery Plant - YouTube

Nissan Electric Car Battery Plant In Tennessee Global Auto News - YouTube

Nissan Smyrna Manufacturing Plant

Second link has some aerial shots in the beginning.

 

[kenliles]

My main idea is that they will use this land (and maybe other parts they can buy near their planet) in addition to their existing factory space to build a battery plant or at least the logistics parts thanks to good and train access.

Again using Nissan's plant as an example they will need quite a lot of space. Nissan claims their battery plant currently is the biggest in North America:

Planet Vehicle: Nissan EV Battery Plant - YouTube

Nissan Electric Car Battery Plant In Tennessee Global Auto News - YouTube

Nissan Smyrna Manufacturing Plant

Second link has some aerial shots in the beginning.

yeah- thanks, based on those examples 35 acres might be enough; agree the location makes a lot of sense and there's no doubt some surrounding land that could be acquired as well

 

[claytorj]

Analyst estimates are all over the map from 100k to 500k vehicles/year for the Gen III (my personal low-end estimate is 100k/year, below that it probably doesn't make sense to call the Gen III a "mass-market vehicle" and sell it at the promised price range of $30-40k base price).

There is a video recently posted in the video thread from a September presentation by JB Straubel. One of his slides said that Tesla's GEN III targets are as follows:
2016 ~ 100,000
2017 ~ 200,000
2018 ~ 400,000
2019 ~ 700,000

- - - Updated - - -

Hmmm, on second thought those targets might have been total Tesla production, not just GEN III.

 

[tftf]

There is a video recently posted in the video thread from a September presentation by JB Straubel. One of his slides said that Tesla's GEN III targets are as follows:
2016 ~ 100,000
2017 ~ 200,000
2018 ~ 400,000
2019 ~ 700,000

Hmmm, on second thought those targets might have been total Tesla production, not just GEN III.

I didn't take his numbers from the video as exact sales projections. Straubel most probably wouldn't be allowed to discuss detailed sales projections in public (?).

His 2019 numbers (above the assumed limits of around 500k cars for current plant) would for example also require TSLA to add another car plant or major expansions at the current plant in addition to new battery supply.

To me, it was more a ballpark estimates and a "what if" scenario to show the huge implications for future battery supply.

But already at 400-500k cars/year, TSLA will need a gigantic battery plant (assuming 5000 cells/car on average, Straubel also used this number in his video), in total around 2 to 2.5 billion cells per year.


As a final summary: I'm certainly not saying TSLA will be unable to build this plant once they raise the funds. But the plant's importance and challenges are underestimated in my opinion:

- This plant will require billions in investments from TSLA (even if done as a JV) because of the sheer size and risks involved for battery suppliers.

- TSLA will especially need to choose the "correct" battery size and chemistry and ramp-up up supply logistics.

- Quality control needs to be very good. Panasonic has high quality standards, this needs to be replicated for 2+ billions cells per year over time (about 4 times Panasonic's current volume !)

- Most TSLA analysts are underestimating the timeframes and investments needed to build his plant, some of them didn't even mention the plant in their reports (but on the other hand the same analysts model in hundreds of thousands of TSLA cars sold/year before 2020, which is of course impossible to achieve without the battery supply !)

- Construction will likely need to start in (early to mid) 2015 already. Because of all the challenges and size involved, the Gen III car could face introduction delays (or a price hike and continued third-party battery supply in smaller numbers to keep the 2017 introduction date)

Just my opinion/estimates. I will leave it at that.

 

[kenliles]

As a final summary: I'm certainly not saying TSLA will be unable to build this plant once they raise the funds. But the plant's importance and challenges are underestimated in my opinion:

- This plant will require billions in investments from TSLA (even if done as a JV) because of the sheer size and risks involved for battery suppliers.

- TSLA will especially need to choose the "correct" battery size and chemistry and ramp-up up supply logistics.

- Quality control needs to be very good. Panasonic has high quality standards, this needs to be replicated for 2+ billions cells per year over time (about 4 times Panasonic's current volume !)

- Most TSLA analysts are underestimating the timeframes and investments needed to build his plant, some of them didn't even mention the plant in their reports (but on the other hand the same analysts model in hundreds of thousands of TSLA cars sold/year before 2020, which is of course impossible to achieve without the battery supply !)

- Construction will likely need to start in (early to mid) 2015 already. Because of all the challenges and size involved, the Gen III car could face introduction delays (or a price hike and continued third-party battery supply in smaller numbers to keep the 2017 introduction date)

Just my opinion/estimates. I will leave it at that.

All excellent points and I generally agree. Interestingly I believe this is the challenge Elon knew would be as the perhaps the last major hurdle required in his master plan (just my surmising here- nothing factual). On the flip side of the risk is a reward, if successful, that will garner certainty of demand and market position that (coupled with a SC network) could yield stock multiples far beyond auto industry norm. This is going to be fun!

 

[tftf]

One addition about the timeline: In an autumn 2013 presentation (see second-to-last slide in link below) TSLA is still talking about "2016-2017" for the Gen III car introduction:

http://files.shareholder.com/downlo...543395/Autumn 2013 Corporate Presentation.pdf

Even if 2016 means December 2016 and a first (signature) series only, the battery factory has to be ready in 2017 to keep the schedule.

Otherwise, TSLA can't sell the Gen III cars in mass-market numbers > 100k cars/year in 2017+.

(I don't see new giant contracts with additional third-party battery suppliers as an alternative beyond the first batch of Gen III cars because of costs etc., details in my earlier posts).

 

[JRP3]

Again, only part of the factory needs to be up and running by 2017.

 

[Zzzz...]

Again, only part of the factory needs to be up and running by 2017.

If need for 40GWh batteries in 2019 is real... I mean it took 20 years to grow li-ion industry worldwide to get to 27GWh yearly production rate in 2012. So even part of the gigafactory would still be massive investment. 40GWh in 2019 would require not just cells assembly plant, but huge lithium mining expansion. And then ore processing plants. And then plants producing cathode materials. And it is not like people will stop consuming smartphones and tablets in 2019.

Sure it could be done. And hope it will be done. But even 1/4th of that 40GWh would require investments on the scale that would dwarf all Tesla non battery investments by that year(Tesla Factory, supercharger network, stores, service centers network, S/X/Gen3 development and tooling, all combined). Hope mining industry will invest. Hope Tesla will do that gigafactory with a partner. But still even part of factory, one forth of intended 40GWh in 2017 would be a massive investment.

PS. Lithium while having many uses, primarily used for batteries and in aerospace. It is like lead, lion's share of lead used for batteries and ammunition.

 

[TSLAopt]

Again, only part of the factory needs to be up and running by 2017.

Does anyone think Google or Apple (or even Samsung) will form a partnership to help merge some of their technology with future Tesla products/cars and in turn help finance the giga factory?

i would say that it's a 20-25% chance of this happening, anyone else have any percentages to assign to this possibility?

 

[JRP3]

I'm not sure any of them would be a good fit since Tesla will be manufacturing a different form factor that tablets and smart phones don't use, plus Tesla is going to need all the capacity of the factory.

 

[palmer_md]

There is an empty building just up the frontage road from the Tesla plant that might be good to turn into a battery plant. It was empty the last time I drove past about a year or so ago.

fremont ca - Google Maps

 

[lolachampcar]

Zzzz,
Exactly what had me scratching my head after Elon's comments on the Q2 call.

 

[30seconds]

my view is that the recent moves by BMW & GM & even historical expansion of hybrid sales all are driving the entire supply chain for lithium ion battery production, not just TSLA future sales projections. There is a big difference between needing a specific form factor at scale and needing the entire supply chain leading up to the form factor manufacturing.

see Toyota May 2013 announcement of Li expansion and switch of US prius to Li-ion pack
http://www.reuters.com/article/2013/05/19/toyota-battery-idUSL3N0E002O20130519
2015 Toyota Prius Rumor Roundup: 60 MPG, AWD, Lithium-Ion Battery

Honda's new hybrid CRZ
Ford Fusion
GM
...

 

[maekuz]

I still think its a possibility that Braeburn Capital steps up and does (a part of) the initial investment in said battery factory.

 

[SteveG3]

We can all see the primary payoff of building such a Giga factory in Musk's stated aim for Tesla... accelerating the adoption of EVs.

I'm wondering about a fairly significant secondary benefit... the cost savings for Tesla. While there are cost savings in manufacturing processes we could speculate about... shipping would seem to be a potentially large savings, we might be able to estimate. Does anyone have any experience that would suggest a percentage of savings by basically eliminating shipping the cells? Unless I'm missing something, these savings would flow right to lower battery pack costs.

(I am going on the assumption that the more clear it is that the factory will benefit Tesla financially, the easier it will be to raise funds outside if needed as part of solving the problem of creating this factory).

 

[JRP3]

I'm not sure shipping costs are all that significant compared to cell costs, plus you still have to ship the raw materials to the US instead of Asia, and those cost might be higher. I think the savings will be in the profits that Panasonic currently gets. If it's a joint venture then only part of those profits will be eliminated.