Tesla starts battery cell production at Gigafactory

Thursday, 5 January 2017

A prototype of the Tesla Model 3 on display in front of Tesla's Gigafactory which will produce batteries for the electric carmaker.

The Gigafactory has been activated.

Hidden in the scrubland east Nevada, United States, where cowboys gamble and wild horses still roam-a diamond-shaped factory of outlandish proportions is emerging from the sweat and promises of Tesla CEO Elon Musk.

Telsa's Gigafactory, which is less than a third complete, will be staffed by 6,500 full-time.

It's known as the Gigafactory, and Thursday (NZT) its first battery cells are rolling off production lines to power the company's energy storage products and, before long, the Model 3 electric car.

The start of mass production is a huge milestone in Tesla's quest to electrify transportation, and it brings to America a manufacturing industry-battery cells-that's long been dominated by China, Japan, and South Korea.

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The Tesla Gigafactory, a 4.9 million square-foot facility, outside Reno, Nevada.

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More than 2,900 people are already working at the 4.9 million square-foot facility, and more than 4,000 additional jobs (including temporary construction work) will be added this year through the partnership between Tesla and Panasonic.

Elon Musk's long-term vision is to transform Tesla from an an electric car company to a clean-energy company.

By 2018, the Gigafactory, which is less than a third complete, will be staffed by 6,500 full-time Reno-based employees and singlehandedly double the world's production capacity for lithium-ion batteries, according to a new hiring forecast from Tesla.

The full activation of the Gigafactory carries existential significance for Tesla as a whole, representing a new sense of urgency at a company known for setting unreachable deadlines. After missing almost every aggressive product milestone it set for itself over the last decade, Tesla must prove to investors and customers that it can stick to schedule for its first mass-produced car.

There are promising signs. Today marks the third successful target Tesla met for the New Year. The company fulfilled its promise to rapidly complete a massive battery storage project to back up the grid in California ; it promptly rolled out promised software upgrades to cars equipped with new Autopilot hardware ; and now has begun battery cell production at the Gigafactory. That said, the company did fall short of its target to deliver 80,000 cars in 2016, reporting just 76,230 completed in time.

For Tesla to succeed, battery production is crucial. There simply aren't enough lithium-ion batteries being made anywhere for Tesla to achieve its goal of 500,000 Model 3 sales by 2018.

Equally problematic is the fact that current market prices are too high for the US$35,000 car to be profitable. Tesla took its unprecedented leap into the desert in the hope that the massive scale of the $5 billion Gigafactory would drive down costs, and demand would arrive just in time to keep it all afloat.

Batteries are the limiting factor for electric cars, but few automakers have made a similar commitment to producing them, choosing instead to let suppliers like LG Chem and Samsung shoulder the risk. In 2015, 88 per cent of the global lithium ion cell manufacturing took place in China, Japan, and South Korea, according to a report by the Clean Energy Manufacturing Analysis Center.

Making America a central player in the battery production marketplace isn't just about cars. Tesla is also building battery packs to power homes and back up the electric grid.

'We believe Tesla battery sales are accelerating,' said Baird analyst Ben Kallo, who recently listed Tesla as the best stock pick for 2017. 'The ramp of Tesla Energy and Model 3 production could exceed expectations.'

The storage products fit into Elon Musk's long-term vision of transforming Tesla from an an electric car company to a clean-energy company. That's the same motivation behind his recently concluded deal to acquire SolarCity Corp, the largest US rooftop solar installer.

At a time when President-elect Donald Trump has taken to Twitter to skewer manufacturers for moving jobs to Mexico or China, Tesla sits apart as an all-American carmaker, battery maker, and solar producer. About 95 per cent of a Tesla's components are made in the US and 25,000 of the company's 30,000 employees are based there.

Musk, who visited Trump recently in New York City, was named to a strategy group to advise the new President.

Betting on batteries is a risky business. Prices worldwide fell 22 per cent in 2016 and will drop another 15 per cent to 20 per cent in 2017, according to forecasts by Bloomberg New Energy Finance.

For electric carmakers, that's a good thing, but for battery producers it makes it difficult to stay ahead of the industry.

It's not clear yet whether Tesla's bet on batteries was the right one, at the right time. But after today, we're another step closer to finding out.