Tesla bets big on the Gigafactory

Tesla's Model 3 outside the Gigafactory in Nevada, which officially opened on Tuesday.
Tesla's Model 3 outside the Gigafactory in Nevada, which officially opened on Tuesday.PHOTO: BLOOMBERG

Billionaire Elon Musk talks about his plans for Tesla and its Nevada factory powered mostly by the sun

NEW YORK • It is official: The pencils are down.  Tesla chief executive Elon Musk told reporters on Tuesday that the final designs for Tesla's US$35,000 (S$47,300) electric Model 3 were locked up two weeks ago and the company is moving forward on schedule to start producing them next summer. And that was just the beginning. 

Mr Musk, 45, spoke in a room looking out onto the grounds of what is rapidly becoming the world's biggest building: Tesla's Gigafactory. When it is complete, 107 football fields could fit inside its footprint.

The diamond-shaped factory in the scrubland outside of Reno, Nevada, is surrounded by thousands of wild horses that drink from its construction ponds. Mr Musk says the project inspires in him a sense of romance - which is perhaps why he opened himself up to an interview that covered everything from proprietary battery design to the book he is reading in his spare time. 

Here are eight takeaways from a tour of the factory and a Q&A with Mr Musk, Tesla chief technology officer J.B. Straubel and Panasonic executive Yoshihiko Yamada.

1. Battery prices are falling to US$100 per kilowatt hour

This fact may sound esoteric, but it is incredibly important. Batteries make up a third of the price of an electric car and are the only reason these vehicles have been more expensive than their petrol counterparts. Mr Musk said he is confident the company will reach a price of US$100/kwh by 2020 (down from an average of US$1,200 in 2010). If he is right, the economics of electric cars will flip, as will the case for battery-backed solar power.

2. Battery costs are falling for three reasons

Cheaper materials, a shorter supply chain and factory automation. The first is straightforward: buying at Gigafactory scale lowers procurement costs of raw materials such as lithium.

Supply chain costs are where some of the breakthroughs are coming. Making a battery pack typically requires components from a dozen different makers. Each one of those products must be built, packaged, shipped around the world, unpackaged, assembled into a pack, repackaged and shipped again.

That is not how things will work at the Gigafactory. Tesla plans to build a train connection to link the Gigafactory to its auto factory 390km away in Fremont, California. The Gigafactory will produce every aspect of the battery packs. Raw materials will enter the factory at one end and finished packs will exit the other end - on a train straight to Fremont.  

Automation is the final costcutting step. Mr Musk says that although the factory will probably employ about 10,000 people by around 2020, most major manufacturing processes are being automated. Some of his most creative engineers were assigned the task of building what will be a more efficient factory. "They can make five times as much headway per hour than if they work on the product itself," he said.

Tesla has even become its own construction company and general contractor, having hired top architects of football stadiums, the new Apple headquarters and the Pentagon for its Gigafactory crew.

3. The Gigafactory has already cut fossil-fuel lines for Tesla

Tesla cut and capped the natural gas line leading to the Gigafactory, so there is no going back to on-site fossil fuels. There is also no diesel generator for back-up power.

That means Tesla must rely on electricity for manufacturing processes that require heat, an unusual step for a major plant of any type. 

By the time the facility is fully up and running, the Gigafactory is meant to be net zero for energy, powered mostly by on-site solar, backed with batteries.

4. Tesla wants to be a power plant

By pursuing cousin company SolarCity, Tesla may have designs on becoming its own electricity virtual power plant, aggregating bits of power from thousands of batteries and rooftop solar systems and selling that energy back to the grid.

It is a hugely lucrative market if Tesla can crack it and, on Tuesday, Mr Musk confirmed that he intends to. "I think we'll get into grid services," he said.

5. Mr Musk plans to spend and make a lot more money

Last week, he released a sort of 10-year mission statement for Tesla, which he dubbed "the master plan, part deux". On Tuesday, he said the plan will cost tens of billions of dollars to implement.

However, he immediately clarified that the money would be spent over many years and, in the meantime, Model 3 sales will more than make up for it. Musk said the Model 3 may bring in revenue of US$20 billion a year (which works out to 500,000 cars at US$40,000 each), with a 25 per cent profit margin. He conceded that a "modest" capital raise might yet be necessary.

6. More Gigafactories are coming

The Gigafactory schedule is being accelerated so Tesla can produce 500,000 cars in 2018, Mr Straubel said. Tesla's goal for 35 kwh of cell production by 2020 is now expected two years ahead of schedule. The fully operational Gigafactory may be capable of three times the output originally forecast.

Mr Musk says future Gigafactories will be necessary, combining all stages of production from battery cell production to finished cars. Expect plants in Europe, China and possibly India, he says.

7. Tesla is stuck on Autopilot

Mr Musk said he was "frustrated" by media coverage on a fatal crash in Florida in May that happened while a driver was using Tesla's driver-assisting software. He insisted the Autopilot technology has made the company's cars safer.

Earlier on Tuesday, Mobileye, the maker of chips and software for driverless cars, said its cooperation with Tesla would not extend beyond its EyeQ3 product. Parting ways with Mobileye was "inevitable", Mr Musk said. "They'll go their path and we'll go ours."

8. Mr Musk still has time to read

He is now making his way through Twelve Against The Gods by William Bolitho, published in 1929. The South African journalist wrote about 12 famous "adventurers" - from Alexander the Great to former US president Woodrow Wilson - who fought against the conventions of their times, for better or worse. It is out of print, but copies are readily available.

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A version of this article appeared in the print edition of The Straits Times on July 30, 2016, with the headline 'Tesla bets big on the Gigafactory'. Print Edition | Subscribe