Tesla’s Gigafactory to Lower Battery Energy Storage Costs

Tesla Motors’ gigafactory is expected to drive battery costs downwards.
Published: Mon 19 May 2014

Tesla Motors’ plans for its US$5 billion gigafactory continue to grow in intensity. The company has recently announced that it will partner with several companies, including Panasonic.

Industrial batteries 30% cheaper with more Tesla gigafactories

The facility is beginning to resemble a massive industrial park and Tesla Motors’ CEO Elon Musk says that eventually there will be a need for several more.

According to Musk, the gigafactory is expected to decrease battery costs by more than 30% now. The gigafactory is key to Tesla's strategy of manufacturing a more affordable, mass-market electric car. Tesla has yet to finalize a location for the gigafactory but is looking at several states, including Arizona, Nevada, New Mexico and Texas. California is also on the list but its lengthy permitting process may prove to be a problem.

The gigafactory is expected to occupy roughly 10 million square feet and eventually employ 6,500 workers. Groundbreaking on at least one of two potential gigafactory sites could happen next month.

Tesla is going even further to minimize risk of the project by planning to break ground on two sites.

Vertically integrating power battery production

Battery pack production will be vertically integrated so that Tesla can benefit from some massive scale advantages. Musk says that vertically integrating the battery production makes economic sense. He explains, “The gigafactory will take that to another level. You'll have stuff coming directly from the mine, getting on a rail car and getting delivered to the factory, with finished battery packs coming out the other side. The cost-compression potential is quite high if you are willing to go all the way down the supply chain."

Tesla expects to cut battery pack cost by 30% in 2017-the year the company plans to begin production of its mass market electric vehicle. The cost reduction will make Tesla's planned affordable third-generation vehicle possible.

Tesla believes the factory will enable it to produce as many as 500,000 vehicles per year by 2020. This will make last year’s 22,500 Model S sales seem almost insignificant, in comparison.

Gigafactory’s stationary energy battery packs will be a game-changer

The gigafactory won’t only be supplying batteries for Tesla's electric cars. It will also be manufacturing stationary battery packs for SolarCity, the San Mateo solar-installation company, as well as other renewable energy companies in the solar and wind industries.

Once large quantities of energy can be stored, the electric grid will be able to harness the full potential of renewable sources such as solar and wind which generate energy sporadically rather than in a steady and reliable flow. Energy storage will be a real game changer as it will also help power producers better-manage disruptions from unpredictable events such as storms and wildfires.

Musk says that the stationary battery packs will be for anyone who wants to buy them. He adds, “There will be quasi-infinite demand for battery storage if the energy density and the price are good enough."

While Tesla forges ahead with its ambitious gigafactory plans, we wait to see how its choice of battery, the cylindrical battery (its popularity on a steady decline), fares in the energy storage market. Read Engerati: Tesla-Wrong Choice of Battery? Still, many believe that the cheap prices will see the battery take off in the energy storage market regardless.