Tesla Gigafactory Investor Thread

[Cattledog]

If Tesla can start producing batteries in March of 2016, that would be a massive acceleration over their earlier timetables of mid-2017. For a company that gets a lot of (reasonable) criticism for delays in their product launches, this would be a big reversal of that trend.

 

[chickensevil]

If Tesla can start producing batteries in March of 2016, that would be a massive acceleration over their earlier timetables of mid-2017. For a company that gets a lot of (reasonable) criticism for delays in their product launches, this would be a big reversal of that trend.

Oh don't get me wrong their public start time is listed as mid-2017. It is just that their internal timetables have come out from various reports and such that you can see they are looking at March for starting. Even if they "start" in March it might take a couple more months before they are actually producing something of value on the lines. Think of the Model S launch in June of 2012... they were technically "running" in June, but producing like 10 cars a week or something silly like that... most of them built almost by hand. They didn't actually start ramping up decently until like Nov/Dec. I anticipate a similar thing happening here. There will be employees in the factory, and there will be test cells made through the lines, checks and rechecks, and then make 10 or 100 of them, check it all again... that is likely to take time since, even though they have the expertise of Panasonic there, this is a bit new to be so fully integrated in one facility that there is likely to be some initial growing pains and learning.

 

[Model 3]

If Tesla can start producing batteries in March of 2016, that would be a massive acceleration over their earlier timetables of mid-2017. For a company that gets a lot of (reasonable) criticism for delays in their product launches, this would be a big reversal of that trend.

... and then we can hope that it rubs off on Model 3

 

[electracity]

Unless the factory is mega-mega-automated and therefore runs with only a few human workers, I'm not sure how they're going to get the workers. It is located in the middle of nowhere. .............

It's a 20 minute drive from Reno. You could even live in California and work at the gigafactory. Like all big industrial parks they will need to stagger shifts.

I doubt batteries made in 2016 in the gigafactory by Panasonic employess on Panasonic equipment are less expensive than batteries ordered in huge quantities from Panasonic Japan. This is a long term deal where the value builds year by year.

 

[chickensevil]

I am pretty sure that even just the first block of the gigafactory (of the slated 7) is just as big as most battery factories out there currently in the world, so I don't agree with the assessment that it will be more expensive. Maybe on the very initial out the gate pricing will be a bit higher than buying from Japan, but I anticipate by the end of 2016 they will have the cost at least on par with their current paid pricings and by the end of 2017 we will see a significant price decrease over top of the Japan deal simply because of cutting out the shipping costs and they will likely be outputing at a higher volume than the average factory while being completely vertically integrated. I don't see it taking long at all to see GM's go through the roof (or the cost fall to the floor).

 

[blakegallagher]

I am pretty sure that even just the first block of the gigafactory (of the slated 7) is just as big as most battery factories out there currently in the world, so I don't agree with the assessment that it will be more expensive. Maybe on the very initial out the gate pricing will be a bit higher than buying from Japan, but I anticipate by the end of 2016 they will have the cost at least on par with their current paid pricings and by the end of 2017 we will see a significant price decrease over top of the Japan deal simply because of cutting out the shipping costs and they will likely be outputing at a higher volume than the average factory while being completely vertically integrated. I don't see it taking long at all to see GM's go through the roof (or the cost fall to the floor).

I agree, Even if it was all japans building(its not) and they were making cells in Reno it seems there would be a significant savings in not having to ship all of the cells.

 

[Cosmacelf]

The other thing to keep in mind about the building schedule is that the initial schedules assumed a regular jurisdiction that had the usual level of rep tape. This county seems to have its act together and really helps companies build their buildings fast. So maybe that's one reason why the factory seems ahead of schedule.

 

[jhm]

I am pretty sure that even just the first block of the gigafactory (of the slated 7) is just as big as most battery factories out there currently in the world, so I don't agree with the assessment that it will be more expensive. Maybe on the very initial out the gate pricing will be a bit higher than buying from Japan, but I anticipate by the end of 2016 they will have the cost at least on par with their current paid pricings and by the end of 2017 we will see a significant price decrease over top of the Japan deal simply because of cutting out the shipping costs and they will likely be outputing at a higher volume than the average factory while being completely vertically integrated. I don't see it taking long at all to see GM's go through the roof (or the cost fall to the floor).

The first block will be a pilot plants. I agree that the scale will be sufficient to realize nearly all the scale ane collocational advantages. Even so, the first order of business is to get it all running and work out any bugs or process design inefficiencies. So I am not expecting high volume or full cost savings initially. Good piloting is also necessary for bringing investors and JV participants along before committing to a second Gigafactory. So it's very critical to take the needed time to get things right in the pilot.

Your timeline seems about right to me. I just don't want the market to develop expectations that are any quicker.

Regarding GM, consider that the cost of battery packs is currently about 25% of the ASP, and the GF should cut at least 30% of this cost. Multiply the two and you get 7.5% more GM. I'm thinking that part of the path to a 30% GM is for Models S and X to hit 35% or more while Model 3 is somewhat lower. I'm not sure where Power* products will come in.

 

[electracity]

I am pretty sure that even just the first block of the gigafactory (of the slated 7) is just as big as most battery factories out there currently in the world, so I don't agree with the assessment that it will be more expensive. Maybe on the very initial out the gate pricing will be a bit higher than buying from Japan, but I anticipate by the end of 2016 they will have the cost at least on par with their current paid pricings and by the end of 2017 we will see a significant price decrease over top of the Japan deal simply because of cutting out the shipping costs and they will likely be outputing at a higher volume than the average factory while being completely vertically integrated. I don't see it taking long at all to see GM's go through the roof (or the cost fall to the floor).

Really? Making the cathode, anode, and the case? Making the proprietary additives? How does one partner with a battery manufacturer and suddenly decrease price? Is Panasonic not making a profit?

The gigafactory is about scale. What goes into production in 2016 is a regular battery factory with 300 employees. No magic here. Starting up is expensive and inefficent, regardless of capitalization of expenditures.

 

[drinkerofkoolaid]

Really? Making the cathode, anode, and the case? Making the proprietary additives? How does one partner with a battery manufacturer and suddenly decrease price? Is Panasonic not making a profit?

The gigafactory is about scale. What goes into production in 2016 is a regular battery factory with 300 employees. No magic here. Starting up is expensive and inefficent, regardless of capitalization of expenditures.

You either haven't been following what's happening with Panasonic and Tesla or are choosing to ignore the developments that have been significantly discussed.

 

[Cosmacelf]

Obvious cost efficiencies include: no cell shipping costs, reduced raw material shipping costs, ability to buy raw materials directly from mines due to scale and planning, improved manufacturing processes just due to the march of technology (older plants have older processes), reduced pre cursor shipping due to making it all in house, reduced logistics expense, reduced water and electricity prices for manufacturing. Those are the obvious ones off the top of my head, I'm quite sure there are other cost efficiencies...

 

[Cosmacelf]

Oh, also, the cell form factor is more efficient, and I'd be shocked if there weren't other physical changes to the cell and battery pack to reduce costs, let alone some fancy new cell chemistry improvements.

 

[electracity]

Obvious cost efficiencies include: no cell shipping costs, reduced raw material shipping costs, ability to buy raw materials directly from mines due to scale and planning, improved manufacturing processes just due to the march of technology (older plants have older processes), reduced pre cursor shipping due to making it all in house, reduced logistics expense, reduced water and electricity prices for manufacturing. Those are the obvious ones off the top of my head, I'm quite sure there are other cost efficiencies...

Then Panasonic has sure been lazy with how they run their Japanese battery operation. A new 300 person Panasonic operation in the U.S. will simply not outperform an established Panasonic Japanese factory. It also doesn't matter, as the gigafactory is a long term development

Panasonic is doing the manufacturing in Nevada because Tesla doesn't have the expertise. Tesla has developed expertise in the cell they want built. Tesla has developed expertise in testing. Tesla and Panasonic has worked through the supply chain to make low cost batteries at very high future volumes. Tesla has many vendor relationships where the other company is the expert in critical aspects of the operation.

 

[chickensevil]

Then Panasonic has sure been lazy with how they run their Japanese battery operation. A new 300 person Panasonic operation in the U.S. will simply not outperform an established Panasonic Japanese factory. It also doesn't matter, as the gigafactory is a long term development

Panasonic is doing the manufacturing in Nevada because Tesla doesn't have the expertise. Tesla has developed expertise in the cell they want built. Tesla has developed expertise in testing. Tesla and Panasonic has worked through the supply chain to make low cost batteries at very high future volumes. Tesla has many vendor relationships where the other company is the expert in critical aspects of the operation.

The more you post the more I am trying to figure out if you are just new to all things Tesla (and its history and such) or if you have an ulterior motive. I will continue to assume you just aren't aware of everything and try to explain.

So first off, prior to Tesla, Panasonic was on the verge of collapse all around and specifically their battery sector was horribly dropping off the deep end. Tesla came along and bought up so much capacity from Panasonic that they quite literally saved them, which is great because Panasonic makes some very high quality products and I would be sad to see then die.

Panasonic went from multiple low used plants and even empty ones to now being as high capacity as they can and last I heard had built or were building another plant in Japan. Panasonic, not forgetting their rough past and making crazy bets on things that didn't pan out has been hesitant but willing to support Tesla since that is now their largest sales on their battery front.

If you are not aware batteries have historically been a low margin cut throat business. They were barely profitable if at all. Such that even the great Panasonic was on the verge of death (as stated above). The reason for having suppliers provide the lesser parts and them specialize in just the putting of it together and the specifics of the chemistry, is the same as with most all industries. Look at cars for example... Most of the car in other plants have hundreds of suppliers and the only IP and Patents that GM and Ford and such focus on is the transmission and the engines themselves. Everything else has been outsourced. So the autos mist have this whole thing figured out right? Wrong. Tesla has the highest GM per vehicle of any brand and a lot of that is because of the high verticle integration going on at the factory. You quite litterally have raw materials going in and full car coming out. Even their computer chips (while outsourced) have been very specifically designed by Tesla which is rare for a car company to design their own computer hardware. They have plastic molding capabilities and soon will be making their own batteries. The battery factory is just taking that to a whole new level of vertical integration.

So why do people not do verticle integration in these industries? Because in theory it is better, even if you could do it cheaper to let someone else take the time and effort doing the work and you just being supplied the product. It's part of that whole free trade theory which I can't remember the guys name now who argued it. But essentially it is better for you to focus on your specialties rather than waste time on things you are less specialized in. Let's say you are a doctor making 50$ an hour. You could totally grow your own food and make your own clothes, but there would be less value in it on a cost per hour vs the gain of the end product. In one hour of doctoring he makes enough money to eat off of for a week. That would take him much more in time cost to grow his own food. Now apply that out to companies and countries and it starts to makes sense why you would be better served in many instances in letting someone else do the work for you and you focus on what makes you great.

So when would you break away from that mold? When you are able to do these things you need for a better value given the time investment. It was a huge risk for Tesla to make the factory at Fremont like they did, but a lot of that came down to uncooperative suppliers not wanting to do business with Tesla and also the refusal of the industry to break from the status quo. Therefore out of part necessity and part the idea to revolutionize the way cars are made, they built almost the whole thing themselves.

They are attempting to do the same thing with the gigafacotry only this time they are keeping suppliers on hand. Panasonic does what it does very well, and cathode maker X does what it does very well. So lets get everyone to come together and work under the same roof all doing what we do best. Now you cut out the transportation costs which is not inconsiderable. Then you establish new partners with the miners. Instead of paying market rates for aluminum and cobalt and lithium, lets go make a deal with mining company Y to have them get a guaranteed supplier, remove the middle man's cut from the equation and Tesla will guarantee to take X amount of volume off your hands every month till you rub out of supply. This gives them a guaranteed seller, they can therefore run the mines at their peak capacity and optimal capacity to clear the most margin on cost on their end and then afford to cut Tesla a cheaper deal than the market rate. Everybody wins. The reason they will negotiate is because the large quantity of raw resources. Take, for example the world's production of Lithium. Now you have a factory by itself doubling the world's usage of Lithium. You don't think that volume would allow for Tesla to make some deals that are beneficial to both parties?

Anyway, I could go on about why this makes sense, others have also pointed out benefits here, but hopefully this better explains why this should pan out with great cost savings and why Panasonic couldn't do this alone.

 

[Zapped]

Good read.
I often wondered how come the auto parts mfg's could have more revenue than the car mfg's they supply. But of course they supply a diverse group of the car mfg assembly plants (over simplified)
I suppose GM or Ford would reduce their risk by outsourcing if their market share or demand dropped for whatever reason.
It's interesting when companies talk about spinning off different divisions and focusing on their CORE business and then go through what seems to be some kind of cycle of mergers and acquisitions.
There's absolutely better control of your own destiny when you do things yourself as TESLA is doing.

 

[jvonbokel]

*Great* post overal chickensevil, and thanks for writing it up. I didn't know Panasonic was struggling that bad pre-Tesla, and I think you summarized the potential cost savings of the Gigafactory spendidly. However, I have one quibble with this part:

So when would you break away from that mold? When you are able to do these things you need for a better value given the time investment. It was a huge risk for Tesla to make the factory at Fremont like they did, but a lot of that came down to uncooperative suppliers not wanting to do business with Tesla and also the refusal of the industry to break from the status quo. Therefore out of part necessity and part the idea to revolutionize the way cars are made, they built almost the whole thing themselves.

Elon has been quoted many times saying that the Model S was engineered from the ground up, and only 2% of it comes from the "parts bin" (best example being the Mercedes stalks and window switches). However, there are also many suppliers they did outsource to. I have personally visited the factory where the headliners are made/assembled (Nashville, IL), and the factory that produces steering knuckles and other suspension components (Mattoon, IL). Also I found a couple good articles with infographics detailing some of their other suppliers. Granted, they're old, so with the pace at which Tesla moves, they could be out of date.

That said, I do think they do more in-house than most other auto manufacturers, and that's part of their advantage when it comes to gross margin. The other part is just having designed/built a car with demand that exceeds supply. I think in particular your example of the computer hardware/software is key, because other automakers (tend to? or universally?) outsource production of those, which results in costlier systems and probably longer lead times. That's one area that has sparked a bit of a reaction from the industry; I believe a couple other manufacturers have recently set up software development offices in the Silicon Valley area.

 

[chickensevil]

*Great* post overal chickensevil, and thanks for writing it up. I didn't know Panasonic was struggling that bad pre-Tesla, and I think you summarized the potential cost savings of the Gigafactory spendidly. However, I have one quibble with this part:



Elon has been quoted many times saying that the Model S was engineered from the ground up, and only 2% of it comes from the "parts bin" (best example being the Mercedes stalks and window switches). However, there are also many suppliers they did outsource to. I have personally visited the factory where the headliners are made/assembled (Nashville, IL), and the factory that produces steering knuckles and other suspension components (Mattoon, IL). Also I found a couple good articles with infographics detailing some of their other suppliers. Granted, they're old, so with the pace at which Tesla moves, they could be out of date.

That said, I do think they do more in-house than most other auto manufacturers, and that's part of their advantage when it comes to gross margin. The other part is just having a car with demand that exceeds supply. I think in particular your example of the computer hardware/software is key, because other automakers (tend to? or universally?) outsource production of those, which results in costlier systems and probably longer lead times. That's one area that has sparked a bit of a reaction from the industry; I believe a couple other manufacturers have recently set up software development offices in the Silicon Valley area.

I'm sorry, yes obviously they have some suppliers. But my understanding, and maybe I have something wrong, is that typically you don't do the amount of production effort in one factory. And I distinctly remember from the magafactories video from 2012 how amazed they were of how much was being made in house at Fremont. To include having their own plastic molding and everything.

I am aware of external suppliers to Tesla because it has been brought up before how silly it is for GA and MI to fight against Tesla because they have a large bulk of those external suppliers that haven't relocated to CA.

And some of the suppliers are (or at least were, I think some have moved out now and went just a bit down the street) making their bits inside of Tesla factory space.

 

[jvonbokel]

I'm sorry, yes obviously they have some suppliers. But my understanding, and maybe I have something wrong, is that typically you don't do the amount of production effort in one factory.

I am by no means an expert on the auto industry at large, but I agree, I get the impression that they're doing much more in-house than the average automaker. And I hope I didn't come across as critical, because I just wanted to clarify slightly what you'd said, so that nobody could mistakenly get the wrong impression. Elon himself has been a little over-the-top in his statements about how raw materials come in one end and a finished car comes out the other. Also, I sometimes wonder how much of that effort was driven by gross margin vs how much was necessitated by virtue of their weak/non-existent relationships with established suppliers. We know that some suppliers didn't take Tesla seriously initially, or had their doubts about the long-term potential of Tesla, and as a result they outsourced things or charged more than they would have to a larger, more established automaker. Unfortunately, knowing what I know of Elon, it wouldn't surprise me at all to find out that he reacted to those kinds of situations by demanding in-house production with little regard to cost.

 

[Zzzz...]

Dynapower to supply 250kW energy storage inverters for Tesla Powerpack

 

[electracity]

I am by no means an expert on the auto industry at large, but I agree, I get the impression that they're doing much more in-house than the average automaker. And I hope I didn't come across as critical, because I just wanted to clarify slightly what you'd said, so that nobody could mistakenly get the wrong impression. Elon himself has been a little over-the-top in his statements about how raw materials come in one end and a finished car comes out the other. Also, I sometimes wonder how much of that effort was driven by gross margin vs how much was necessitated by virtue of their weak/non-existent relationships with established suppliers. We know that some suppliers didn't take Tesla seriously initially, or had their doubts about the long-term potential of Tesla, and as a result they outsourced things or charged more than they would have to a larger, more established automaker. Unfortunately, knowing what I know of Elon, it wouldn't surprise me at all to find out that he reacted to those kinds of situations by demanding in-house production with little regard to cost.

Tesla did try to have motors made by a supplier. That didn't work out, so they bought the specialized equipment. Their view on what should be manufactured in house has probably evolved. I'm sure they have some great supplier relationships that have brought more value than doing it in house. Doing a particular aspect poorly in house is a great motivator to find someone who has the right expertise. Sometimes that is a hire, sometimes a vendor.

As far as the gigafactory, the battery industry has changed a lot in five years. I'm sure those plans are evolving too. It would be interesting to know China's battery investments.