Posted on 10/05/2014 6:40:13 PM PDT by ckilmer
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October 5, 2014 | Comments (10)
Tesla Motors (NASDAQ: TSLA ) is calling it the Gigafactory. The electric-car maker estimates that the $5 billion factory will boast lithium-ion battery production that by 2020 will exceed the entire world's 2013 lithium-ion battery production. The factory, Tesla says, is necessary for the company to bring the economies of scale to batteries that will enable Tesla to launch an electric vehicle at half the price of its Model S by 2017, one that will be disruptively aimed at the mass market. Citing the Gigafactory among the key reasons, Morgan Stanley analyst Adam Jonas is calling Tesla "the most important car company in the world."
Tesla's Fremont, California, factory produces vehicles as fast as it can. Limited only by supply, with the main bottleneck being lithium-ion batteries, Tesla hopes its Gigafactory can help make the company a mass-market player. Image source: Tesla.
While Tesla's bold move with the Gigafactory certainly comes with its fair share of risk, the risk to those in the auto industry overlooking its potential may be far greater -- colossal, even. Fortunately for investors, there is still a way to profit from this potential revolution.
The beginnings of disruption
After the electric-car maker narrowed its prospective locations for the site down to five states, the finalists competed viciously for several months to land the enormous factory. There was a sense of desperation as Texas, California, Nevada, New Mexico, and Arizona vied for what could be the beginning of a revolution that could flip the auto industry upside down.
Texas Governor Rick Perry went as far as driving a luxury Tesla Model S sedan around in California. California State Senator Ted Gaines even showed up at Tesla's Palo Alto headquarters with a golden shovel. And the offers presented by the different states behind closed doors were probably all worth hundreds of millions of dollars.
Of course, it's no surprise that government officials went to great lengths in their attempts to convince Tesla to make their state home to the Gigafactory; the factory will bring 6,500 jobs. And experts have predicted the location could help add $100 billion of value to the wining state's economy over a span of 20 years.
Rendering of planned Gigafactory. Source: Tesla Motors.
Nevada finally won Tesla's race for the Gigafactory home in early September with the help of an incentive package with an estimated value of $1.25 billion. But Tesla, whose first principle in the defining values of its "Tesla Culture" is "Move Fast," had actually already broken ground on the factory in the first half of July, keeping the heavily guarded construction quiet until the company's second-quarter conference call on July 31.
Why was Tesla building the Gigafactory in Nevada before the company officially chose the state for the final location?
"If we don't have the Gigafactory online when we have the vehicle capacity online we'll actually be in deep trouble," Tesla CEO Elon Musk said during the company's first-quarter conference call in May. He went on to explain that the risk of not having the Gigafactory ready by the time its lower-cost Model 3 is ready was greater than the risk of starting construction on a site that may not have ended up being the official location. In fact, Musk said he was even willing to break ground in multiple locations to reduce the probability of any delays.
The biggest transformation the automotive industry may ever see
The potential for the Gigafactory is enormous. In fact, it could serve as the first step in making electric cars more compelling than the internal combustion vehicles we know today. Consider these two items that quickly put the massive potential of the Gigafactory into perspective:
Back of Model S. Image source: Tesla Motors.
500,000 vehicles: This year, Tesla plans to deliver just 35,000 vehicles. But with the help of the Gigafactory -- which should be complete by 2017 -- and a launch of its Model 3 around the same time, Tesla hopes to ramp up its global sales to 500,000 vehicles per year by 2020.
Half a million vehicles is no small sum. Consider that General Motors' total global sales in 2013 were 9.7 million. At these levels, Tesla may be stealing meaningful sales from competitors. Furthermore, if Tesla can truly grow its sales from 35,000 to 500,000 in just six years, what's to stop the electric-car maker from taking its winning formula one step further with another Gigafactory and more new models -- perhaps helping Tesla reach annual sales that exceed 1 million vehicles in less than 10 years? Even more, if Tesla can prove it can sell 500,000 vehicles per year, other automakers may join in to help spur the transition to electric vehicles -- a move that would most likely benefit Tesla, not hurt it.
$100 per kilowatt hour: During Tesla's second-quarter 2014 earnings call, Musk offered up a thought-provoking prediction that has game-changing implications. "I'd be disappointed if it took us 10 years to get to $100 [for] a kilowatt-hour pack," Musk said during the Q&A portion of the call.
Deutsche Bank analyst Rod Lache, who upgraded his price target for Tesla stock from $220 to $310 after the call, seemed shocked. "So, basically you're saying that, you know, within the next -- within that time frame you would expect electric vehicles to reach cost parity and maybe even improve upon the cost of an internal combustion vehicle?"
"Yeah," Musk responded.
"Uh-huh. That's interesting ... that's a pretty big statement," Lache mused.
But, for Musk, this seemed to be old news: "Seems pretty obvious to me."
This commentary highlights how Tesla's estimate of a minimum of a 30% cost reduction for lithium-ion batteries by 2017 (when the Gigafactory is supposed to go live) really is just a minimum -- not the target. More important, this prediction shows that, according to Tesla, this 30% cost reduction by 2017 is just the beginning.
Model S and an early prototype of Tesla's Model X SUV (launching next year). Source: Tesla Motors.
As Lache suggested, a cost of $100 per kilowatt hour would mean that compelling electric vehicles with meaningful range could be more cost-efficient to manufacturers than internal-combustion-engine vehicles. Such an achievement could lead to disruption in the automotive industry at mass scale.
But Musk insists that this is exactly where electric vehicles are headed.
"It's heading to a place of no contest with respect to gas," Musk boldly predicted.
The opportunity
Reflecting the market's confidence in Tesla's story, the growth company's stock isn't cheap. Tesla's market capitalization currently sits at just over half of General Motors'. So, investors looking for a bargain may be prone to overlook Tesla as an opportunity for their portfolio. However, the best companies with the greatest potential rarely trade at prices that appear to be discounts. With this in mind, before investors fret over the company's wild valuation, they should take a closer look at Tesla's monstrous growth potential and give it the weight it deserves. If Tesla really can outline a compelling value proposition with a vehicle aimed at the mass market, it's likely that we are looking at the beginning of a revolution.
Tell us about your car.
Sorry about that. I should have capitalized the word NEW electrical supply.
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August 21, 2014 |
WASHINGTON, D.C. — According to the latest “Energy Infrastructure Update” report from the Federal Energy Regulatory Commission’s Office of Energy Projects, all new U.S. electrical generating capacity put into service in July came from renewable energy sources: 379 megawatts (MW) of wind, 21 MW of solar, and 5 MW of hydropower.
For the first seven months of 2014, renewables have accounted for more than half (53.8 percent) of the 4,758 MW of new U.S. electrical capacity that has come on line with solar (25.8 percent) and wind (25.1 percent) each accounting for more than a quarter of the total. In addition, biomass provided 1.8 percent, geothermal 0.7 percent, and hydropower 0.4 percent.
As for the balance, natural gas accounted for 45.9 percent while a small fraction (0.3 percent) came from oil and “other” combined. There has been no new electrical generating capacity from either coal or nuclear thus far in 2014.
I totally agree that coal and natural gas are cheaper than wind and solar. But according to reports solar is already competitive with coal in arizona — maybe even without subsidies. (I’d have to check on that.)
Whatever, likely if the pubbies get the white house in 2016 they’ll chop out the subsidies for wind and solar. However, given the way prices for wind and solar continue to fall—hey in another 10 years they’ll reach price parity with coal and natural gas —all over the USA.
Maybe.
I do agree with you that until battery storage gets much much better/cheaper neither wind or solar are suitable for baseload electrical supply. My favorite for baseload is thorium lftr msr reactors.
In fact, the pubbies need to develop a grand technological vision as the dems have done. (In fact, they have set up the climate change narrative so that the change over to electric cars will redound to their favor.)
The grand republican vision would include msr reactors that produce electricity at 1/4 or less the cost of current cheapest coal/natural gas and desalination at 1/5 the cost of current cheapest desalination.
Desalinized water and msr reactors that cheap would enable the USA to turn the deserts green not just in the USA but around the world.
that’s actually the intermediary step to terraforming mars.
I totally agree that coal and natural gas are cheaper than wind and solar. But according to reports solar is already competitive with coal in arizona — maybe even without subsidies. (I’d have to check on that.)
Whatever, likely if the pubbies get the white house in 2016 they’ll chop out the subsidies for wind and solar. However, given the way prices for wind and solar continue to fall—hey in another 10 years they’ll reach price parity with coal and natural gas —all over the USA.
Maybe.
I do agree with you that until battery storage gets much much better/cheaper neither wind or solar are suitable for baseload electrical supply. My favorite for baseload is thorium lftr msr reactors.
In fact, the pubbies need to develop a grand technological vision as the dems have done. (In fact, they have set up the climate change narrative so that the change over to electric cars will redound to their favor.)
The grand republican vision would include msr reactors that produce electricity at 1/4 or less the cost of current cheapest coal/natural gas and desalination at 1/5 the cost of current cheapest desalination.
Desalinized water and msr reactors that cheap would enable the USA to turn the deserts green not just in the USA but around the world.
that’s actually the intermediary step to terraforming mars.
You are talking a minuscule bit of electricity.
You have not answered the FUNDAMENTAL question at all. Apparently you believe in unicorns and magic
What do you believe is the FUNDAMENTAL question.
It is the one you REFUSE to answer....where is all of the EXTRA electricity to run these monsters going to come from??? And please do not resort to the ridiculous wind power and solar.....those are non functional and use more energy than they produce
where is all of the EXTRA electricity to run these monsters going to come from??? And please do not resort to the ridiculous wind power and solar.....those are non functional and use more energy than they produce
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where is all the energy going to come from to run all the new cars on the road.
beats me. I can tell you that demand for oil currently is flat to down while the production of oil and natural gas is skyrocketing. If you don’t believe that more than 50% of new electrical power production comes from solar and wind —even after reading the articles that say as much and even granting that these power sources currently cost more than coal and natural gas...then what the hey I’m not going to argue with you on that. All I know is what I read.
imho in 15 or 20 years the 4th generation portable nuclear power plants are going to come on stream in large volumes and much cheaper prices than current cheapest coal. But at this point this is pretty speculative. US regulation agencies are killers.
Your statistic is meaningless. Claiming that this is somehow the answer to our energy crunch where we have rolling black outs and heating shortages ishows a lack of understanding. The physics of it won’t allow it.
You are postulating replacing all cars with these inefficient beasts. I ask you where the electricity will come from and you cite a silly article. I show how much of the overall production of energy your beloved green stuff produces and you give more meaningless statistics. You don’t address the overall inefficiency of those sources. Since we are killing coal and nuclear and only private lands are being used for new oil and gas your fifty percent of new is not useful.
I your last comment is laughable. When was the most recent nuke plant built?
How many Mw do your wonderful new plants produce? How many cities do they run? These are small scale, few hundred Megas output.... Your theories are about as valid as those who want ethanol in part or in whole
All right.
You have convinced me that you do not believe that electric cars can happen.
Further you have convinced me that you believe that electric cars will never happen.
Finally, you have convinced me that if you do see electric cars on the road, you’ll consider them to be either a fantasy or an affront.
This is all good. No worries.
I do think that the pubbies will likely slash subsidies to solar and wind if they get the white house in 2016. But any fall off in new electrical supplies that causes will be made up for by natural gas — as is currently happening in California. The drought there has cut hydro production in half. The extra electricity is being generated by natural gas sources.
Similarly there is a great danger that the turbines for the hoover dam will be shut off because of falling water levels. This will shut off electricity to large sections of the southwest. However, some of the new large solar farms coming on stream are expected to take up some of the slack. How much I don’t know.
I’m not a greenie. I think its a shame what the greens are doing to the coal industry. And what they would do to oil and natural gas if they could.
That said, I think its a great blessing to have as many sources of energy as possible for the same reason that it best to have many sources of income. You don’t know when one will go bust.
Oh quit being so snarky....the article you posted claims things that Tesla wants you to believe....
Never nonce did I say that electric cars won’t or don’t exist. What I have said consistently is that they will not REPLACE all cars currently on the road
And of course your so called green energy patter is pointless. Solar is falling into disfavor due to the problems the surrounding environment is suffering from bug fields. Wind power is fine for a small scale and has never been a full time solution. Bio mass is so inefficient it isn’t even funny
The so called nuclear solution you hope for hasn’t happened and at least in the US will never be allowed to be built.
I find it interesting when asked to name a NEW major power plant that uses nuclear you fall into silliness.
So many want to get rid of coal (just ask them) and that is a huge portion of our current energy useage. Replacing that source of energy is the current big challenge.
Just because Elon has sold you and the folks in some of the investment community a bill of goods doesn’t mean that it will happen
Never nonce did I say that electric cars won’t or don’t exist. What I have said consistently is that they will not REPLACE all cars currently on the road
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Oh well this is easy. I don’t think that electric cars will replace ALL cars on the road either. Neither do I want that to happen. Rather what I want is for the two systems to go head to head in a competitive race that drives efficiencies up and costs down—and eventually kills the price of oil. It doesn’t take but a small bite out of demand to deflate oil prices as events are proving now.
Coal and natural gas in equivalent btus are currently priced at about $35@ barrel. That’s where I want oil prices to go. That’s where I think they’ll go in 10-15 years.
Of course another technology that will skim off demand for oil in the next decade is conversion over to natural gas trains trucks and buses plus large commercial buildings in the northeast.
Feel free to disagree.
So food and soda and lattes purchased with EBT cards are free?
Medical services under Obamacare are free?
Housing projects and Obamaphones and cash for clunkers and two years of unemployment compensation is free?
How about "free" medical care for illegals? Is that kind of like a medical recharge for criminals instead of cars?
Sheesh, man. All this free stuff is exactly why we are $20 trillion in the hole.
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