The massive lithium-ion battery cell gigafactory planned by Tesla Motors (NASDAQ:TSLA) has the potential to disrupt the entire electric vehicle industry, and for the better. It’s estimated that once the project — which is projected to cost in the neighborhood of $5 billion and employ 6,500 people — is complete, it will lower the cost of Tesla’s battery packs by at least 30 percent. As the most expensive component on the car, this is a crucial factor for Tesla’s future plans for more affordable cars.
However, the plan has its critics — not so much about the strategy, but more about the company’s ability to execute. Such a large-scale project would require help from other large firms, particularly Panasonic (PCRFY.PK), which already produces the cells for Tesla’s Model S sedan. Given that Panasonic can only produce so much as it stands now, the gigafactory would be a lifeline of sorts for Tesla, provided Panasonic gets on board. Many expressed doubts that this would happen.
But those critics are one step closer to eating their words: Panasonic on Thursday announced a formal letter of intent to join Tesla’s battery production project. “We’re actually quite comfortable that we’re heading toward a final agreement sometime later this year,” JB Straubel, Tesla’s chief technology officer, said on the company’s conference call following Tesla’s quarterly earnings on Wednesday. Groundbreaking on one of at least two possible factory sites may happen as early as next month, CEO Elon Musk said, per Bloomberg.
The factory, though, won’t just supply Tesla with the cells it needs, though that’s a driving motive. It will also produce power storage devices for homes and buildings with solar panels to help reduce electricity reliance from the grid. Between the two, the factory will play an enormous role in sculpting a lithium-ion and energy economy that has yet to break into the mainstream.
Battery supply constraints are the biggest issue facing Tesla’s growth at the moment. Although the company surpassed its own delivery estimates for the first quarter, Tesla has ambitious plans to ramp up production this year in order to fulfill North American orders while simultaneously filling the Asian and European order pipelines.
Despite beating estimates, Tesla’s stock is getting pummeled in premarket trading, since the company didn’t beat by as much as analysts and investors were expecting. That just goes to show how fickle Tesla’s stock is, as it is considered to be exceptionally over-valued: The smallest nuance can send the shares into a spiral despite a seemingly solid report.
By the end of the year, Tesla hopes to be assembling 1,000 Model S sedans per week, up from about 700 currently. It’s projecting an annual output of 35,000 for the year, well over the 22,000 or so it produced in 2013. That’s still a comparatively low number of vehicles to warrant Tesla’s enormous market cap, though the company is working toward increasing capacity to make room for the Model X SUV for early next year.
The gigafactory is expected to cover all of Tesla’s battery needs for the Model S, the Model X, and the forthcoming Model E, or Gen-III model, which is expected to cost less than $40,000 and boast a range of 200 miles. It’s also expected to become Tesla’s mainstream bid, theoretically catapulting the brand from a niche player into a volume competitor.
In case you missed the full earnings report on Wednesday, we’ve got you covered.
Tesla was facing a lot of pressure to perform during the first quarter of 2014 to satisfy analysts calling for meaningful growth, while its production remains bound by capacity constraints and the supply of battery cells for its Model S sedan remains a trickle. While the company is still moving to fulfill orders in North America, it’s having to set aside units for delivery to China and Europe. Tesla is bound: It has the ability and the legs to run (and fast), but it is shackled by chains and a lock — the key for which it doesn’t hold.
Expectations for the first quarter called for earnings of 7 cents per share, down from 12 cents during the year-ago quarter, and revenue of $704.5 million, Tesla’s best quarterly performance figure ever, according to Bloomberg’s panel of analysts. Crucially, that’s without the zero-emissions credits, and it represents a 25 percent leap over the same figure from the year-ago quarter. Projections are also calling for the delivery of 6,429 Model S cars to Europe and North America. The estimates are closely bound, ranging from a low of 6,200 to a high of 6,600. Tesla itself was aiming for 6,400.