If Tesla doesn’t have its battery factory ramped up when its third-gen electric car is ramping up, Tesla will be in trouble.

Electric car maker Tesla is racing toward building the world’s largest factory for lithium ion batteries. In the company’s earnings call on Wednesday, Tesla CEO Elon Musk said that Tesla plans to break ground on the factory in a still undetermined location as early as next month.

In an unusual style, Tesla actually plans to break ground on at least two sites (maybe even three) in parallel until it ultimately chooses one. The list has been narrowed down to a handful of states in the southwest including Nevada, Arizona, New Mexico and Texas (that list also now includes California). Musk said Tesla would break ground on the second site a couple months after the first one.

Why such a big rush? Tesla needs the battery factory to be able to produce enough batteries for 500,000 electric cars by 2020, including for Tesla’s third-generation lower cost electric car. If the factory isn’t ramped up at the same time as the ramp up of its third-gen car, it would be a big problem for Tesla.


Production of Tesla’s cars is already constrained by battery supply. Tesla buys small-format lithium-ion batteries from Panasonic, and thousands of batteries are used in each Model S battery pack. On the earnings call this week Musk said that battery supply would constrain Model S production in the second quarter of this year, but would be relieved in the third quarter of this year.

Worries about how battery constraints would hurt the development of the third-gen car are why Tesla is racing forward with the factory so fast and breaking ground on multiple locations. It’s a delicate dance of product launch and supply.

Tesla’s CTO JB Straubel said on the earnings call that every one month delay in the third-gen car due to battery supply constraints “is far more expensive for us than the incremental costs that we may incur up front to kick off two sites at one-time.” Musk said:

If we don’t have the Gigafactory online when we have the vehicle capacity online, we will actually be in deep trouble, because we’ll have all the equipment and tooling and people for making cars, but not be able to produce the battery packs.

Having to move so fast on such an unprecedented factory — the factory is supposed to double the current entire world’s lithium ion battery production — will be difficult and will take a lot of swift and creative thinking on Tesla’s part. Tesla already has an idea of how it would operate.

The battery factory will be like “an industrial park under one roof,” said Musk on the call. Panasonic will likely produce the battery cells in the factory (Tesla now has a signed letter of intent from Panasonic), and then other companies would work in the factory and produce the anode, cathode, separators, and feed them to Panasonic. Tesla would produce the battery packs and be the landlord, said Musk.

California is now a contender for the location of the battery factory, but Musk said California is an “improbable” choice. That’s because the state requires a lengthy process for approval of construction on new sites, and Tesla needs to act quickly.

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  1. Navarre Bartz Thursday, May 8, 2014

    Did you mean to say cathode, and not catheter?

    1. Ha. Yes! Don’t know why I wrote catheter. Will fix.

    2. damnyouautocorrect.com

  2. Indeed, this is the way the big three started, and most other industrial moguls, seizing an opportunity and capitalizing on it, too bad Cal. can’t react swiftly enough to matter.

  3. I hope Nevada gets this. We could use the boost in employment.

    1. Texas Nevada to much trouble. The whole state turns every week. Can’t wate for car sales out of factory instead of dealers. This will change the way every one buys cars. Just think no dealers any more. Factory direct sales I might have to get 2 of them.

  4. Jack Campbell Thursday, May 8, 2014

    I wonder whether building a $5B factory won’t create even more problems for Tesla. It doesn’t make money today on a GAAP basis. Given that, how will they recover the cost of the new factory while building supercharger stations and trying to figure out how to make money in China? Seems like a real stretch to this energy guy.

    Jack Campbell

    1. They really don’t need to make money right now. As long as they break even, the market capitalization will easily keep them afloat while they expand their operation at virtually light-speed. The fact that they’ve survived as long as they have, and they’re in the black, is utterly remarkable — nobody’s done that over ANY timeframe in the US automotive business in many decades.

      1. EPS is negative. P/E ratio is negative. They are not in the black by standard accounting procedures.

        1. Jesus Carlos-Alberto Mendoza Kevin Saturday, May 10, 2014

          Well thank goodness you reiterated the financials we’ve all read, Kevin. In that case, let’s just give up and go back to driving Hummers, since EPS, P/E ratio, and you- are so negative.

          1. Jesus, you talk like a duck, you walk like a duck…

      2. George Fuller Doug Sunday, May 11, 2014

        Since when has Tesla made a dime. That is VoDo accounting that generated those so called profits. Plain nonsense, there just isn’t a market for an $80K car to invest that much that is needed for a battery powered car. Furthermore, A successful battery is not even in existence, let alone a high production battery. Im surprised that this car even got this far its certainly no engineering marvel as portrayed. Big publicity stunt from my point of view.

        1. Publicity stunt by whom? There is certainly a market for an $80k car or they wouldn’t be selling so many they can’t keep up with production.

  5. Wait. When this “gigafactory” was first announced Tesla Motors said that CA was not a contender. Now they say CA is among one possible sights but it is “improbable” due to CA having a long approval process. Then why even add CA to the list?

    1. My guess would be that for this project, CA will find a way to speed-walk the approval through the process. Why wouldn’t they (we)?

    2. Peter O’Brien Adam C Friday, May 9, 2014

      Because when you tell a state you are thinking about spending $5B in their state they tend to cut corners to get approval done faster.

      You will find that when you are willing to throw money at a state and create jobs in their districts that politicians are just about willing to do anything. The factory will probably get any number of state tax breaks for the first 5 – 10 years of its operation.

  6. Some useful info would be some description of the batteries used on gen 3. My understanding is current Tesla batteries are just a LOT of small lithium cells, like AA batteries, all joined together in a big clump. Do they have plans for larger battery cells, have they built and TESTED the new battery design, do they have a proven production process already running in some existing factories? I hope they’re not planning on using some new, untested design.

    1. All large batteries are made up of small cells. there is no “new battery design”.

      1. That’s not true, there are much larger cells available commercially. However, Tesla is using an “18650” cell because it was available in the quantities they needed, at least initially. It’s also easier to cool (the small size allows the coolant to pull heat out of the cell easily). They switched chemistries between the Roadster and the Model S, but it’s still the same size and shape cell, and cell voltage and current capability as well, just better performance.

  7. “With big names like Rockwood Holdings (NYSE:ROC), Sociedad Quimica y Minera (NYSE:SQM) and FMC (NYSE:FMC), the electric vehicle manufacturer doesn’t have too many options to choose from. Add to that Tesla’s plant location choices of either Nevada, Arizona, New Mexico or Texas, and it seems that the choice is pretty clear. Given Nevada’s proximity to the electric vehicle manufacturer’s production facility in Fremont, California, that state is the most logical choice. Further, Nevada is home to Rockwood Holdings, a producing lithium company as well as the world’s top producer of lithium compounds.”

    from: http://lithiuminvestingnews.com/8474/survey-will-teslas-gigafactory-be-good-for-lithium/

  8. steve troy Friday, May 9, 2014

    Hey #Elon, why would you want to build a #Tesla battery factory in a state that wont let you sell your cars? #Texas? Seriously?

    1. @Steve: Pretty sure Texas would be asked to choose between keeping the dealership-protection law or getting the battery plant…

    2. Alexander I Shaskevich steve troy Friday, May 9, 2014

      Hey Steve Troy,

      Texas is gonna change the laws real soon. All auto manufacturers will be able to sell directly to consumers with no dealer needed.

    3. It isn’t just the battery factory, it is also the new launch facility for SpaceX that is on the line. Texas needs to get off the “pot” or get left behind.

    4. Texas has some of the best wind farm territory in the world. The problem is, it’s too far from the main grid and would take billions in new transmission lines to take advantage of. Using those windmills for this factory would solve that problem. And, it’s in the most desolate, cheapest land part of the country.

  9. Musk is the man with “the” mission, no doubt about it. but danger lurks in the shadows ’cause the american auto industry is about to be pushed off to the side of the road, literally, and they won’t stand still while “mission-man” whirls about making lightening in a bottle.
    I think America’s future depends upon what happens, either way.

  10. Would anybody be surprised if somehow, some way, CA decides to power-walk approval for the gigafactory through the approval process?

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