Tesla Motors aims to make its electric cars less expensive and more efficient by taking control of its supply chain for batteries and constructing a $5 billion “Gigafactory” to create lithium ion cells and perhaps make alternative energy vehicles a more affordable part of everyday life.
An electric car company is dependent on its supply of batteries, so Tesla raised $2 billion last week for the construction by selling bonds that can be exchanged for stock. Tesla will build the battery factory in partnership with “strategic battery manufacturing partners,” the company announced in a blog post last week.
If the Gigafactory is a success at improving batteries then Tesla CEO Elon Musk, a serial entrepreneur, could branch out and design lithium cells for mobile devices, says Karl Brauer, senior analyst at Kelley Blue Book automotive valuation company.
“There are opportunities in markets all over the world to build more effective and cheaper batteries,” Brauer says. “One of the major complaints of cellphones – including iPhones – is the battery life.”
Apple already expressed interest in Tesla and “had conversations” with the electric carmaker in 2013, Musk recently told Bloomberg, adding that a sale is “very unlikely.”
“Apple and Tesla don’t have to merge to make a deal on batteries,” Brauer explains. “If the Gigafactory reaches a certain level of capability Musk could have Samsung and Apple coming to him asking how long it would take to design better batteries for them. Tesla could be the seed for this development and become secondary, since a lot more laptops and phones are sold every year than cars are sold.”
The battery factory may help Tesla reach its goal of producing an electric car less expensive than $40,000 by 2017, as opposed to its Model S sedan, which today costs more than $70,000.
“The Gigafactory is designed to reduce cell costs much faster than the status quo and, by 2020, produce more lithium ion batteries annually than were produced worldwide in 2013,” the company announced in a blog post. “By the end of the first year of volume production of our mass market vehicle, we expect the Gigafactory will have driven down the per kWh cost of our battery pack by more than 30 percent.”
Finalists for the location of the Gigafactory are Nevada, Arizona, New Mexico and Texas, chosen for their sun-baked desert areas ideal for a solar-powered factory.
Musk could potentially get a favorable deal on infrastructure costs by using his solar energy company Solar City to tap the desert heat to provide power for the Gigafactory, Brauer says. Musk made his fortune as a co-founder of PayPal, which was acquired by e-commerce giant eBay in 2002. Funding from the deal helped Musk found Tesla in 2003 and Solar City in 2006.
Along with being less affordable than the average gas combustion car the Model S has a limited range of slightly more than 200 miles. To support Tesla customers, Musk is expanding a network of stations across the U.S. where users can charge their cars to undertake travel across the country as drivers of conventional gasoline cars do. The Gigafactory, if successful, could also lead other automakers including Toyota to step up battery development, Brauer says.
“If the cost and range issue of electric cars could be impacted in a positive way by the factory you would start thinking about why you don’t buy an electric car,” Brauer says.