Tesla Gigafactory Investor Thread

[electracity]

It's not just about space (but even on the floor space level, Tesla is at just 14% of the planned size), but also total investments to achieve the needed GWh.

If Tesla has a less capital intensive way to get cheap batteries for 500,000 cars, great. We don't know what capital investment Panasonic is making elsewhere to supply Tesla. Making batteries this year for 80K cars plus Tesla Energy is a lot of capital investment for Panasonic.

I also don't see how Tesla makes 25gwh of batteries in Nevada in 2018, but this does not bother me. Since I think making 500,000 EV battery packs in 2018 is a big challenge, I think this is their focus.

Oddly, the acceleration of M3 production may have resulted in planning for fewer cells to be manufactured at the gigafactory in 2018.

 

[tftf]

Oddly, the acceleration of M3 production may have resulted in planning for fewer cells to be manufactured at the gigafactory in 2018.

Well, how does this change of strategy add up financially? That's my old question.

Tesla kept advertising to investors how the unique scale of the "original" (100% built) Gigafactory (including recycling and direct access to raw materials and having all battery component sub-suppliers in one space etc.) will bring down battery pricing by 30-40%.

(Never mind they used old 2013 battery prices from competitors as comparisons, as if all the other battery suppliers would stand still and make no progress on their chemistry, factories and pricing between 2013-2020).

- So will the much smaller pilot plant (at 14% of the original scale) also lower prices by 30% or more?

- If not, how can they sell an M3 car at $35k base pricing by late 2017 (battery pack will still be among highest component cost in the vehicle) ?

- If not, why plan this giant factory in the first place instead of importing cells from Panasonic Japan as before (and upgrading the facilities there for new chemistry / larger cylindrical form factors...)?

 

[techmaven]

Tesla and Panasonic will have to invest billions more over the coming years to make the current pilot plant into a Gigafactory at the projected output levels.

Of course, they are going to spend more money. They already announced that way back when they announced the Gigafactory in the first place. As for spending more than they projected, again, Panasonic spent roughly $1.1 billon to build the existing Suminoe Plant in Osaka, Japan that builds cells for the Model S and X. It's roughly 7 GWh. It is far cheaper to build in Nevada than Osaka, Japan and Tesla/Panasonic already know where they are saving more costs. So why would it be substantially more money? If the Germans overspend, that's their problem.

However, now Tesla's approach to owning battery factories has been validated since VW is seriously considering this plan. They've praised Tesla recently, saying that Tesla did all the right things. Clearly, any serious industry watcher knows that the big automakers have to invest up front money in battery production in order to stay relevant. Tesla is ahead of the curve, as usual, and it takes a while for others to understand, much less take action. If they are only spending $10 billion over the next 9 years, that's not a good thing for VW.

 

[techmaven]

Well, how does this change of strategy add up financially? That's my old question.

Tesla kept advertising to investors how the unique scale of the "original" (100% built) giant factory (including recycling and direct access to raw materials and all battery component sub-suppliers in one space etc.) will bring down battery pricing by 30-40%.

(Never mind they used old 2013 battery prices from competitors as comparisons, as if all the other battery suppliers would stand still and make no progress on their chemistry, factories and pricing between 2013-2020).

So will the much smaller pilot plant (at 14% of the original scale) also lower prices by 30% or more?

If not, why build it in the first place instead of importing cells from Panasonic Japan (and upgrading the facilities there for new chemistry / larger cylindrical form factors...)?

Pilot phase of the Gigafactory already brings the price down 30%. Additional scale necessary to ship more cars, not to achieve price reduction. The comparison isn't against other car companies or other battery manufacturers, it's against their own battery pack pricing. The improvements are not only at the cell level. They've said this over and over from the very beginning.

Of course, Tesla didn't have a choice in building first... they had to ship product first which meant buying from Panasonic. And Panasonic has been updating chemistry. And likely, Panasonic will update the lines at some point, especially as the Gigafactory phases come online and production disruptions can be scheduled in for such upgrades. Tesla has already updated the Model S battery pack design once and will likely do so again when it makes sense.

 

[tftf]

However, now Tesla's approach to owning battery factories has been validated since VW is seriously considering this plan.

Nissan spent billions on three large battery plants (located in Japan, Europe/UK and the U.S.) well before Tesla even started talking about a Gigafactory - including recycling and using spent EV batteries for ESS / local energy buffering later on.

It's not a "new" plan or strategy validation by Tesla to bring down costs or secure supply:

Nissan's New US Battery Plant Shows Major Dedication To EVs - HybridCars.com

(this is just a portrait of one of the three plants)

5 Facts About Nissan’s Battery Manufacturing Plant - The Equation

Nissan and Eaton power ahead with second-life battery system - Automotive World

 

[electracity]

So will the much smaller pilot plant (at 14% of the original scale) also lower prices by 30% or more?

Don't ask me. I don't believe that the gigafactory will produce cells at a substantially lower cost cells than competitors working at the same scale. Panasonic, LG and Samsung are not stupid.

Musk is going to concentrate resources in areas where Tesla can gain significant competitive advantage. Wooing Panasonic to Nevada makes sense. Competing in the near-commodity business of high volume cell manufacturing may not make sense. Better to have the battery manufacturers provide most of the capital and pay for the capital by purchasing cells.

Tesla will likely profits most by concentrating capital in car building, not cell building. The gigafactory strategy was forced on Tesla by the reality of battery availability and cost. To the extent that conditions have changed, Tesla should adopt.

 

[Johan]

The 14% drivel is getting old. Forget all those old numbers. Things change quickly with Tesla.

 

[tftf]

The 14% drivel is getting old. Forget all those old numbers. Things change quickly with Tesla.

The 14% is already adjusted to the revised floor layout (not just the old footprint) of the Gigafactory.

But let's assume this changed again (we have no sources for that, otherwise please show me links...) - even so, the invested numbers don't lie.

You simply can't build the "largest battery factory in the world" for $ 500 million or even $ 1 billion - that's why Tesla/Panasonic talked about $ 5 BILLION for the full Gigafactory and VW is talking about 10 BILLION EUR for their huge battery project (according to educated sources in Germany):

Der Konzern erwäge den Bau einer eigenen Batteriefabrik, möglicherweise in Salzgitter, wo bisher herkömmliche Motoren gebaut werden. Das meldet die Nachrichtenagentur dpa mit Bezug auf Konzernkreise. Zehn Milliarden Euro will VW demnach in das Projekt stecken.

VW plant offenbar Batteriefabrik in Salzgitter

2018 is just two years away. We will see how many cells Tesla can actually pump out per year with the current structure and at just up to 20% (if we assume around $1 billion in PTD investment until 2018, so another $ 500 million over the coming quarters) of projected total cap-ex.

 

[techmaven]

VW plant offenbar Batteriefabrik in Salzgitter

2018 is just two years away. We will see how many cells Tesla can actually pump out per year with the current structure and at just up to 20% (if we assume around $1 billion in PTD investment until 2018, so another $ 500 million over the coming quarters) of projected total cap-ex.

What exactly do you think VW will be doing by 2018?

Gigafactory will likely have around $3 billion invested by the end of 2018, and very important, already have a significant revenue stream that will help pay for the rest of the investment.

 

[CButterK]

What exactly do you think VW will be doing by 2018?

Gigafactory will likely have around $3 billion invested by the end of 2018, and very important, already have a significant revenue stream that will help pay for the rest of the investment.

IMHO, VW needed to show good faith publicity as part of damage control to win back Customer confidence to purchase ICE products for now, as they try to bridge the gap with announced PHEVs for next several years, then BEV by 2020. My guess is, VW won't have a functioning Gigafactory(not even 14%, ) until 2020+

 

[JRP3]

If not, how can they sell an M3 car at $35k base pricing by late 2017 (battery pack will still be among highest component cost in the vehicle) ?

Since Tesla has stated higher end models will be selling first it's quite likely they won't be selling any M3's at $35K until well into 2018.

 

[JRP3]

Nissan spent billions on three large battery plants (located in Japan, Europe/UK and the U.S.) well before Tesla even started talking about a Gigafactory - including recycling and using spent EV batteries for ESS / local energy buffering later on.

It's not a "new" plan or strategy validation by Tesla to bring down costs or secure supply:

Nissan's New US Battery Plant Shows Major Dedication To EVs - HybridCars.com

I see, so the GF was a really bad idea for Tesla but other large battery plants by other companies are really good ideas. Got it.

 

[tftf]

I see, so the GF was a really bad idea for Tesla but other large battery plants by other companies are really good ideas. Got it.

Where did I say that it was a really good idea?

If you had read a few of my older comments or blog entries on the topic for the past 2+ years - or read Nissan's annual reports - you would have noticed that Nissan lost / wrote down a few billion USD on this vertical integration strategy in EVs so far.

I was just pointing out that vertical integration and secondary use / recycling of EV batteries has been tried well before Tesla announced their Gigafactory or storage plans.

The alliance now leads EVs globally with Renault-Nissan (and even more so thanks to the new 30% Mitsubishi Motors stake), but was all the vertical integration cap-ex worth it (especially since they are likely switching partners from NEC to LG and vertical integration makes it harder to switch battery technology partners...)?

Vertical integration in battery supply is a necessity to some degree, not an advantage.

Like DRAM or solar panels, this field is full of technology gaps and "pork cycles" for the next 1-2 decades, very low margins can be anticipated.

Just look at the history of DRAM, flash storage and solar panel makers over the past decades to get an idea where cell manufacturing is headed.

What exactly do you think VW will be doing by 2018?
(...)
Gigafactory will likely have around $3 billion invested by the end of 2018, and very important, already have a significant revenue stream that will help pay for the rest of the investment.

I don't know what VW will do (and I don't own any VW shares). They will announce their 2025 strategy in a few weeks:

Überblick: Die wichtigsten Themen für Volkswagens "Strategie 2025" - manager magazin

It doesn't take too many crystal balls to see which areas they will likely focus on:

• Autonomous driving R&D
  
• Digital / Connected cars (along with new business models, see their recent investment in GETT: VW invests $300M in Uber rival Gett in new ride-sharing partnership )
• More Electrified vehicles

That's where every major car maker is investing in long-term.

The last bullet point could involve announcing a large battery factory in Europe (at least later on, maybe in a JV structure, who knows...).

As for 2018? They will likely still buy their battery cells from large Asian suppliers.

Regarding your $3 billion prediction until 2018, that will involve Tesla raising a lot more capital by CY 2017 (even if Panasonic shoulders its parts of the investments going forward).

 

[techmaven]

As for your s3 billion prediction until 2018, that will involve Tesla raising a lot more capital by CY 2017 (even if Panasonic shoulders its parts of the investments going forward).

Incremental amount for Tesla is about $800 million to $1 billion. Tesla doesn't have to raise a lot more capital for that.

 

[Gerardf]

<snip>
I don't know what VW will do (and I don't own any VW shares). They will announce their 2025 strategy in a few weeks:
Überblick: Die wichtigsten Themen für Volkswagens "Strategie 2025" - manager magazin
< snip>

The last bullet point could involve announcing a large battery factory in Europe (at least later on, maybe in a JV structure, who knows...).
.

Hej tftf, I actually think you are on to something !

Wouldn't it be great if VW announces a JV in Europe with Tesla for GigaFactory-2. Crazy enough, it all fits.

- in a few weeks VW announces their plans
- Tesla delayed GF party a few weeks

I would be SO curious to your reaction if it would be announced in a few weeks by VW and Tesla that GF-2 will be in Germany and is a JV between Tesla, VW and another partner like LG or Panasonic or Samsung. GigaFactory as a product.. Im Salzgitter.

 

[Gerardf]

Disclaimer : extreme speculation for the fun of it. But hey, it is weekend.

Actually, the more I though about the above..... It is crazy enough for Musk to do, and one can see the many win-win elements in it.

It is very, very unlikely as VW is probably will be too much of a dinosaur and too afraid of Tesla's success to condider it. Just like noone took Tesla up on the offer to use the SuperCharger network....

Some of the win-win's :

- In line with Tesla's vision to "accelerate the advent of sustainable transport"
- In line with Tesla vision that more EV competition is not a danger but a means to execute that vision.
- VW gets the experience and know-how and access to low € / kWh battery packs, derisking this major and complex project.
- VW will not depend on others to secure availabily and stable pricing for the packs.
- VW can profit from large scale while their own need for batteries still has to ramp up.
- VW goodwill, negotiation position to lower exhaust fraud penalty. This alone can actually pay for VW's part.
- VW jumps ahead of Toyota, GM, Ford, etc, etc in the switch to sustainable clean technolgy.
- Tesla gets a big partner for a European GigaFactory, securing financing and stable pack pricing in the Eurozone.
- Tesla gets the extra battery capacity they will need in 2018-2023.
- Tesla's BEV vision is (again) confirmed and no longer up for discussion, for even the most die-hard fossile fuel fans.
- GigaFactory as a product.
- VW has then option in this deal to sign in, at favorable conditions, for SuperCharger access for the new VW BEV's.

Remeber Elon officially requested for VW not to get a hughe fine, but should be forced to EV investments instead.

Crazy and very, very unlikely.. Sounds to me like a crazy enough challenge for Mr. Musk to consider

P.S. Also a win for us shareholders. Short sqeeze of epic (ludicrous !) proportions day after announcement

P.p.s tftf, shoot me down as a crazy uber bull.. But your posts from the Hop-Sing laundry were the trigger for these thoughts.

 

[Johan]

You simply can't build the "largest battery factory in the world" for $ 500 million or even $ 1 billion - that's why Tesla/Panasonic talked about $ 5 BILLION for the full Gigafactory and VW is talking about 10 BILLION EUR for their huge battery project (according to educated sources in Germany):

But what on earth are we discussing here? Is your premise that Tesla + Panasonic won't invest the ~5 billion? Or do you live in some parallel universe where all of a sudden they've claimed they'll build the entire thing for just 0.5-1 billion???

It really is tiresome with these straw man arguments.

 

[tftf]

But what on earth are we discussing here? Is your premise that Tesla + Panasonic won't invest the ~5 billion? Or do you live in some parallel universe where all of a sudden they've claimed they'll build the entire thing for just 0.5-1 billion???
.

1. Tesla doesn't have the money to invest their remaining chunk of the $5bn rapidly (even after the latest capital round). The other question is if they (that includes Panasonic) really want to build the GF to its projected size even if they have/had the funds.

2. The parallel universe is Tesla claiming to build 500k cars (and batteries) by 2018 - and storage batteries on top of that! - given the small investments so far and the limited size of the pilot plant.

2018 isn't far away. We will soon see...

- how much more Tesla raises until then (I see another huge capital round coming in CY 2017, the Model3 will also require lots of cap-ex)

- how many cells and batteries they will produce 18-24 months from today given that there is no activity yet on phase 2, 3 etc. in Nevada.

- what the actual pricing advantage is over other battery suppliers (again, it doesn't make sense to claim a 30+% cost advantage using old 2010-2013 figures, LG and Samsung don't stand still until 2018-2020).

 

[dc_h]

Tftf really points out that EV's can't lose. Prices of batteries have, he says, already fallen too much to expect 30% cost reduction. If he's right, good for Tesla, if he's wrong better for Tesla. Either way he is arguing that EV prices are declining rapidly, which means they will win the ICE war. Without burrowing through Excel sheets I don't think we can know, but Elon and JB still believe and we will see if phase 2 has begun on July 29th, or when it will begin.

 

[dhanson865]

The negative implication being that Tesla no longer has a competitive advantage on price for battery cells wrt its competitors, should it turn out that a gigafactory isn't necessary to drive down prices with the targeted 30%.

wouldn't the implication be that they have even more than expected ability to reduce costs?

A. Tesla says high capacity of the Gigafactory can drop costs by 30%

B. Panasonic increases cell technology and reduces prices with existing plants

A + B = C Tesla uses Panasonics improvements with the expansion of the gigafactory and make the cost drop more than the previously expected 30% with lower start up costs because Panasonic reduced the need to pay higher construction costs for expediting.