Tesla lifts curtain on $5 billion 'gigafactory'

The electric-car maker is looking at sites in Arizona, Nevada, New Mexico and Texas for its massive new facility.

By MSN Money Partner Feb 27, 2014 1:36PM
Tesla Model S sedans outside of the Tesla Factory on August 16, 2013 in Fremont, Calif. (© Justin Sullivan/Getty Images)By Mike Ramsey, The Wall Street Journal

Electric car maker Tesla Motors (TSLA) said on Wednesday its proposed battery "Gigafactory" would cost up to $5 billion and allow it to sell as many as 500,000 vehicles a year.

The Palo Alto, Calif., company outlined plans for a factory that would employ up to 6,500 people and cover as many as 1,000 acres, including solar and wind farms to supply its power needs. It is evaluating sites in Nevada, New Mexico, Arizona and Texas, Tesla said in a regulatory filing.

The proposed 10 million-square-foot facility would make the powerful and pricey lithium-ion batteries that power its Model S and future vehicles. Tesla has said it needs its own production to meet expected demand and hit its cost target for a more affordable car.

Tesla said it would raise $1.6 billion through a bond issue to help finance construction. The auto maker said it would contribute $2 billion toward the proposed battery factory, which would also make storage batteries for electric utility uses. It estimated the plant's cost at between $4 billion and $5 billion, with first production in 2017.

Tesla Chief Executive Elon Musk, who last November first raised the idea of a "Gigafactory" that takes in raw materials and produces finished batteries, has said he intends to build the factory with unidentified partners.

On Wednesday, Panasonic (PCRFF) said it was "considering various options to strengthen our ties" with Tesla. Panasonic, the primary battery supplier for Tesla's Model S, is considering a nearly $1 billion investment with other Japanese suppliers in the battery factory. Tesla's announcement Wednesday didn't mention Panasonic.

Musk, who is chairman of SolarCity (SCTY), a solar energy provider that offers Tesla battery packs to users of its solar arrays, declined to comment through a spokeswoman. SolarCity's battery packs store electricity for use during peak demand or nighttime use.

When it reaches full production in 2020, the Gigafactory would produce more lithium-ion batteries than currently are produced today for all uses, the company said. At full capacity, it would produce 50 gigawatt-hours of battery packs a year.

Tesla expects that in its first year, the new factory would reduce its battery costs by more than 30 percent. First production is timed to coincide with deliveries of its first mass-market electric vehicle. That car is expected to travel 200 miles on a single charge and be priced starting at $35,000.

While electric-car manufacturers don't publicly disclose their battery costs, Dan Hearsch, a battery expert at consultants AlixPartners LP, said the average cost generally is around $400 a kilowatt-hour, though Tesla's may be lower.

Tesla is attempting to break through $200 a kilowatt-hour. At that price, the batteries are so relatively inexpensive that they become affordable as backup power supplies to the electric-power industry, said Sam Jaffe, an analyst at energy market researcher and consultants Navigant Research.

"If you get near $150 per kilowatt-hour, you really open up these batteries for static storage" which could be a new business for Panasonic, he said.

According to Navigant, in 2012 the entire lithium-ion battery industry produced just under 27 gigawatts of batteries, with most going to electronics applications such as laptop computers and mobile phones.

Jaffe said the size and proposed output of the Tesla factory would require an enormous amount of electricity and natural gas to operate. Tesla provided an artists rendering of the complex showing a large array of solar panels and wind turbines supplying energy to the operation. Musk has said his plan is to use renewable energy.

Goldman Sachs Group (GS), Morgan Stanley (MS), J.P. Morgan Chase & Co. (JPM) and Deutsche Bank AG (DB) are underwriters for the auto maker's debt issue.

Tesla's Fremont, Calif., assembly factory, which sits on a 370-acre site, is more than 5 million square feet. Tesla only uses a fraction of that plant today.

A person familiar with the discussions in Nevada said Tesla officials are considering the Reno area for the plant. Reno is home to a startup lithium mining-and-production operation owned by Western Lithium USA Corp. The miner is developing a pilot plant to create lithium carbonate, a key ingredient in making lithium-ion batteries.

—Kana Inagaki contributed to this article.

More from The Wall Street Journal

Feb 27, 2014 3:53PM
Feb 27, 2014 2:34PM
So a Californian electric car manufacturer is planning a massive new factory that will probably employ massive amounts of new workers ................ BUT, I wonder (LOL) why he is forsaking Cali for Nev, AZ, TX and NM ......... must not be enough unemployed , LOL, in Palo Alto!
Feb 27, 2014 5:20PM
How amusing, all of the new locations for the $5 billion plant are in red states. Tesla isn't stupid. They are probably fed up with California's extortion tax rates.
Feb 27, 2014 2:48PM
I have trouble believing they would end up building a factory in TX unless TX relaxed it's dealership laws and actually allowed them to sell cars there.
Feb 27, 2014 3:19PM
Guarentee the factory will be placed in a location -that will give tesla corp -the most tax free land & lowest minimum wage!! Bet it dont??
Feb 27, 2014 5:07PM
A dog will never lift it's leg twice on a Tesla wheel
Feb 27, 2014 9:16PM
Keep up the good work Tesla, Many years ago GE - T. Edison _ and the fed. gov. screwed over a person and stole his Idea's & patients,  His name was TESLA , KARMA is about to kick some butt!. I can't wait to buy a car that don't use gas or that stinking Diesel!.
Feb 27, 2014 9:47PM
Like everyone else they are fleeing California and their Liberal Taxes. I think Texas will make them the best deal on Taxes
Feb 27, 2014 7:02PM
This is the kind of auto-maker that would have thrived more if Government Motors had been allowed to fail.   As usual the feds just keeping raising costs and screwing everyone.
Feb 28, 2014 1:33PM
Wonder if Texas is feeling stupid for going out of it's way to make business hard for Tesla now. Hopefully they make peace and money together. I hope they plop this right down in the middle of oil country.
Mar 11, 2014 11:12PM
Would be nice if they came here to Tucson. Plenty of sun for the solar power that they will need, sun shines an average of 350 days a year. Also plenty of available land around metro Tucson.
Feb 27, 2014 9:23PM
Nevada would be a good place because of raw material & taxes, but OREGON would be better and I'll bet the tax man might find a way to NOT beat them to death!. NO TORNADO'S , SNOW LESS THAN TAHOO, Great Country to live in and you can BREATH freash air EVERY DAY.
Mar 14, 2014 5:29PM
The factory would cost 10 thousand dollars per vehicle to make the first year. After that it would be just maintenance to produce cars. Looks like the average production is 78 vehicles per employee. The more production of any part of the vehicles means more profit per vehicle for Tesla. Boeing out sourced many of its production. Parts of the airplanes would not fit together, ,Battery problems, Production delays, and certification delays that cost billions of dollars in profits. The big problem is only 200 miles a charge. That eliminates millions of workers that would buy it. Imagine this big snowstorm and only 100 mile trip. Stuck for hours with a dead battery. My gasoline vehicle goes 4 hundred miles on a tank.
Feb 27, 2014 9:43PM
Years ago I was working for an electric utility company, we're talking late 80's early 90's the push was on getting behind promotion of electric powered cars..... we as an electric utility bought several knowing they weren't very good then, today they are still a waste of money. Why do we keep pushing and subsidizing products that we'll never fully support..... what a waste.
Feb 27, 2014 3:25PM

There is the old Ford F-150 plant that is located in Norfolk, VA. I would also be a great selection for Tesla.  The area has tons of experienced workers and a facility, which will require modification, instead of a build from the ground construction.  That is something that could possibly cut its investment/ finance cost in half.

Feb 27, 2014 7:32PM
I doubt if this factory will ever be built. Lithium batteries will be replaced by far better technologies in the next 15 years.. If they do go ahead, the research, engineering, development, and pilot plant will be in California where the brains are and those will be high paying jobs.  The m****duction assembly-line will need to be built in a third world country with low taxes, low environmental standards, low wages, low benefits, and no possibility of a union.. So it will be built in China, Mexico, or maybe Texas. Maybe Big Oil would stop them...it will be interesting to see if Texas would allow such forward thinking. 
Feb 27, 2014 7:00PM
Feb 27, 2014 2:51PM
It has yet to be determined how much the taxpayers will have to pay, but it's estimated at 1.5-2.5 Billion.
Feb 27, 2014 4:10PM
Obama will give Tesla $3 billion subsidy and $2 billion loan as a going away gift,his response,  ( Can't Touch Me ).
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