Elon Musk, CEO at Tesla Motors and Spacex, is also the Chairman at Solar City, whose panels hold the promise of helping save the world from global warming and fossil fuels. The company’s future hinges on a seemingly paradoxical strategy – Tesla isn’t profitable selling cars capped at $70,000 higher but it’s planning to sell a model for half that price starting in 2017. In theory, sales will jump to 500,000 by 2020.
In line with it’s expected future production, Tesla’s wants to build a gigantic factory that can produce 500,000 lithium-ion battery packs per year to make his new model affordable. Musk expects the facility, called Gigafactory, to cost about $5 billion and begin turning them out by the end of 2016. “Do The Impossible” is one of Tesla’s slogans. Musk set out to make Gigafactory happen. He looked to spread the cost, sought package of incentives from states for the right to be the factory’s home and he succeeded. Musk received full support from Nevada to build the factory outside Reno. The state would give Tesla $195 million in transferable tax credits previously set aside for filmmakers and insurance companies, $113 million in highway funds and $1.1 billion in abatement – 20 years without paying sales tax on equipment and construction materials (worth $725.8 million), 10 years without property taxes ($349 million), 10-year break on payroll taxes ($29.4 million) and $8 million in electricity discounts – which brought the total tally to $1.4 billion.
Tesla is making a huge bet that lithium-ion batteries will be a major source of power in the future. The electric car company and its partners are investing about $5 billion in total to get its gigantic battery plant up and running. Gigafactory is expected to begin producing battery cells in 2016 and is slated to reach full production by 2017. Once fully operational, the company claims it will be able to make enough batteries to build 500,000 a year by the end of the decade.
With the amount the company is investing in the battery technology, it’s fair to say that Tesla is pretty confident its bet will pay off. During the Baron Investment Conference last Friday, Musk shared some additional insight regarding why he is so optimistic about Tesla’s battery technology. “At this point we have a good understanding of all the battery technologies in the world. Right now, we track about 60 different efforts around the world to develop improved batteries and some of them hold some long-term promise. We rate all of them from one to five, where five is we should be doing business with them and one is complete BS.”
Musk said there were no four or fives, but there were some threes, based on that rating system. Musk acknowledged that there is a slight chance that there could be some super secret laboratory somewhere where a new battery technology is being developed that Tesla doesn’t know about. He said it’s unlikely because Tesla is the biggest consumer of lithium-ion in the consumer world, so it would make the most sense for them to license to Tesla.
Currently, Tesla’s vehicles do have the longest range of any EV, but they also have the highest cost. With the Gigafactory, Tesla aims to use the economy of scale to bring down the price of its technology, and thus of its vehicles.
“Certainly, incremental improvements to the battery pack range are important. But the thing that is really is reducing the cost per kilowatt hour – the fundamental focus is the cost per unit of energy. So that is what the Gigafactory is about. It’s taking economy of scale as far as we can possibly imagine, to a very extreme level,” Musk said.