Tesla's Gigafactory

Elon Musk, the chief executive officer of Tesla Motors, has announced a "gigafactory" which is due to start production in 2020 as the world's largest lithium-ion battery maker. The factory would require capital investment between $4 billion and $5 billion and is planned to support 6,500 direct jobs. The giant factory would product 500,000 lithium-ion packs per year, exceeding the entire global capacity today. Whether or not the market can support the increased battery supply remains to be seen, but Tesla's upcoming Model E which is scheduled to launch in 2017 with a more modest price than the current Model S could drive demand.

The goals of the factory include reducing the price per kilowatt-hour for lithium-ion batteries and increasing the energy density. In order to make electronic cars price competitive with their internal combustion competitors, lithium-ion battery prices would need to slide from around $1000 per kilowatt-hour to $200 or less. The gigafactory would significantly reduce those production costs. Additionally, the plan entails drastically increasing the energy density, allowing for electronic car manufacturers to decrease the space required and increase range.

Panasonic, a Japanese electronics company, is the majority investor in the gigafactory despite the large price tag coupled with an unproven company and product. The market quickly reacted with shares of Tesla Motors and lithium producers surging in the days following the announcement. Such a swift reaction suggests that the market believes that the final product demand exists and that there will be value added throughout the production chain. However, with the demand for the gigafactory's production still unproven, it will be interesting to see if the market can grow enough to absorb the increased supply, and whether or not the lower costs will finally bring electronic cars to the mass market.

-Davis Meiering