Tesla Gigafactory: Small Step for Manufacturing, Giant Leap for Electric Cars

TeslaGigafactory

Tesla’s (NASDAQ:TSLA) recently detailed gigafactory project for producing battery cells means a hell of a lot for the electric vehicle industry, and the auto industry at large. Such an expansive project has never been undertaken to support the production of electric cars, and the jobs it would create — about 6,500 — and the money being sunk into it — about $5 billion — would mean a hell of a lot for the state lucky enough to host such a project, as well.

Chances are, then, that states will be clamoring to a chance at scoring the facility within their borders, given the immense economic activity that would come along with it. According to Bloomberg, Tesla has already been looking in Texas, Nevada, Arizona, and New Mexico for a space to construct the 10 million-square-foot facility. To finance it, Tesla will be selling $1.6 billion in convertible notes.

“This would rank as the most attractive industrial project out there,” Dennis Cuneo, who is the president of DC Strategic Advisors LLC, and a former Toyota executive who helped that carmaker select manufacturing sites, told Bloomberg.

Furthermore, this plant would be more than a support vehicle for Tesla’s production line. When completed, the gigafactory would possess more capacity to produce lithium ion batteries than any other facility in the world right now. Not only would that be beneficial for Tesla’s supply chain, but it would make CEO Elon Musk a heavyweight fighter in the energy sector as well.

TeslaModelS

“This has a huge impact beyond Tesla,” Harley Shaiken, a labor economist at the University of California, Berkeley told Bloomberg. “It gives enormous legitimacy to battery production and the future of the electric car because that lies in the battery. It’s high stakes, high technology.”

Eventually, Tesla wants to get its production up to around 500,000 vehicles per year; in 2013, it produced a hair over 22,000. It has a lot of growth ahead of it to reach that point, since it only offers one model at the moment; however, the gigafactory will be an integral step in lowering the cost of batteries, helping to lower the cost of Tesla’s vehicles moving ahead.

This will become especially important as Tesla moves forward with its Gen-III vehicle, or Model E, which is expected to carry a price tag around half that of the Model S and bring Tesla from the niche-market fringes to a mass-market enterprise.

“Without question there will be a very intense bidding war — $5 billion is a breathtaking figure,” Shaiken said. States want the jobs and “also the research and development related to this. That’s going to be very significant.”

More From Wall St. Cheat Sheet: