Giga-Expectations: Tesla's Gigafactory

By Chuck Ross | Jul 15, 2017




Right about now, the first of Tesla’s heavily promoted Model 3 electric vehicles (EVs) are rolling off of the assembly line. At a starting price of $35,000, before tax credits, the cars are less than half the cost of the manufacturer’s high-priced Model S and Model X, but still are promised to offer 200-plus miles between charges. Paired with the manufacturer’s noted eye for style, that performance and price could combine to create a game-changer for the EV market.

To power the hundreds of thousands of Model 3s anticipated to hit the road over the next several years, the company’s equally ambitious battery plant—dubbed the Gigafactory—also is ramping up production. Its goal is to produce 35 gigawatt-hours (GWh) of lithium-ion battery capacity annually. To put this enormous output in perspective, that figure for a single plant is higher than the total global production of lithium-ion batteries in 2013.

Doubling down on lithium-ion

Though the Model 3 is the primary driver behind the Gigafactory’s construction, the facility’s output also will supply two stationary products from Tesla’s energy division: the Powerwall residential battery product and Powerpack utility-scale system. As of February, building costs alone are said to have exceeded $1 billion for the plant, where construction is far from complete. Total costs are expected to reach $5 billion once equipment is factored into the bottom line, so the effort represents a significant investment in lithium-ion technology by Tesla and its partner, Panasonic. Though alternative battery designs are under development, it’s unlikely any of these will reach large-scale commercialization in the immediate future.

“There really aren’t competing technologies that are ready for the commercial marketplace,” said Chris Robinson, a Lux Research analyst focused on energy storage.

Chief among these are products that could incorporate solid-state electrolytes, he said, adding that those would require new manufacturing processes that aren’t likely to be developed before the mid- to late-2020s. In the meantime, any incremental improvements could be addressed within the Gigafactory as it is.

For Tesla, a mass producer interested in both EV and stationary applications, the adaptability of lithium-ion chemistry also is a big plus.

“It’s one of the few technologies that can play in both markets at the same time,” said Logan Goldie-Scot, leader of the energy storage team at Bloomberg New Energy Finance. “If you’re looking for a technology that can span both worlds, it definitely is lithium-ion.”

Lithium-ion is more of a category descriptor than a single, specific approach to battery design. So, Tesla’s focus on this approach isn’t quite as single-minded as it might seem.

“Lithium-ion is somewhat of an umbrella term that’s made of a number of different technologies,” Goldie-Scot said.

Adjusting manufacturing systems to take advantage of evolving cost and energy-density improvements could require a manufacturer to incorporate new chemistries, but it’s not an overhaul of your actual equipment.

For EV uses, in particular, the fact that lithium is the lightest metal (and the lightest solid element) is especially appealing. Ravi Manghani, GTM Research’s director of energy storage, sees this as a significant contributor to the technology’s growth, though he agrees with Robinson’s assumption that improvements will continue to be made.

“The presumption is that lithium-ion is going to be the technology for the next 10 to 15 years, but that doesn’t mean it’s going to stay the same,” he said. “Beyond that 10-to-15-year horizon, it’s anybody’s guess where we could end up.”

Driving a broader market

Tesla’s not alone in betting big on lithium-ion storage solutions. In fact, it’s likely not even the largest such battery producer under its own Gigafactory’s roof. According to Goldie-Scot, Panasonic is believed to have committed up to $2 billion for the project, and a majority of the batteries manufactured there are based on Panasonic technology. But other manufacturers have developed their own massive battery-manufacturing facilities to capture the same economies of scale on which Tesla is now capitalizing.

LG Chem has been operating its own Gigafactory in Holland, Mich., since 2011 and is believed to have reached 1 GWh of annual production. An expansion now under construction is intended to support growing sales of the Chevrolet Volt and Chrysler Pacifica. Internationally, LG Chem, Samsung and Tesla have announced plans for similarly large battery-manufacturing plants in Europe and Asia. Chinese manufacturers, including BYD Auto Co. Ltd.—which beat Tesla last year in EV sales—are ramping up their own facilities both in China and in Europe.


As of February, building costs alone are said to have exceeded $1 billion for the plant, where construction is far from complete. Total costs are expected to reach $5 billion once equipment is factored into the bottom line, so the effort represents a significant investment in lithium-ion technology by Tesla and its partner, Panasonic.


“There is a number of these large Chinese battery vendors announcing added manufacturing capacity over the next few years,” Goldie-Scot said. “These gigawatt-hour-scale plants have showed large reductions in costs.”

While international EV sales growth is certainly helping drive this production expansion, stationary energy-storage applications also offer a rapidly rising market for the world’s battery makers. In the United States alone, stationary storage sales doubled last year, compared to 2015’s figures, to 336 megawatt-hours (MWh), from 180 MWh the year before, according to GTM Research. Similar growth is anticipated for 2017, Manghani said, because both electric utilities and their customers are finding new uses for energy storage.

Utility-scale ambitions

Robinson said he is seeing a strong uptake of lithium-ion batteries from electric utilities, with a major leak at the Aliso Canyon natural gas storage field in Southern California giving the battery manufacturers a chance to prove their rapid-deployment capabilities. The storage facility supplied a number of natural gas peaking plants, and it was shut down in the wake of the leak’s discovery, threatening power supplies across the region.

To address potential power shortfalls, the California Public Utilities Commission approved approximately 100 MW of energy storage in the territories of Southern California Edison and San Diego Gas & Electric, with three projects totaling 70 MW awarded last fall to Tesla, Greensmith Energy and AES Energy Storage. All were completed in less than three months and now are able to shift stored daytime solar production to peak early-evening hours. Tesla supplied the batteries for its 20-MW installation, while Samsung SDI was the vendor for both the 20-MW Greensmith and 30-MW AES projects. The AES installation in Escondido, Calif., is currently the largest lithium-ion battery project in the world.

Tesla’s aggressiveness in utility-scale bidding projects is a key factor driving the increased cost-competitiveness of battery-based storage in these applications, Manghani said. Also, it could be the company’s across-the-board impact on costs is even stronger than in the EV market, where its batteries are part of a vertically integrated operation and aren’t being sold to other automakers. In stationary projects, Tesla is competing head-to-head with other market leaders and has a proven track record of driving down costs among all manufacturers.

For example, Manghani cited the success of Tesla’s Powerwall, a residential/light commercial-scale storage system, and its utility-scale Powerpack offering.

“We already saw that, when the Powerwall was first introduced, it brought every other stationary product down by 10, 20, 30 percent,” he said. “There definitely was a base price pressure. It’s not the cheapest, but it’s definitely in the lower tier of that price set.”

The goal of the Gigafactory is to produce 35 GWh of lithium-ion battery capacity annually.

Bringing storage home

Though it gets a lot more popular-media coverage than large utility-scale installations, residential battery systems represent a very small part of the stationary-storage market. However, starting from this small base, GTM Research anticipates residential installations will represent the fastest-growing storage-market segment over the next five years. Also, buyers are no longer concentrated in California and Hawaii, as GTM reported in its “U.S. Energy Storage Monitor 2016 Year in Review.” Two-thirds of last year’s residential installations occurred outside of those two states.

Here, too, Tesla’s marketing strategies are driving those adopted by its competition. Years before Tesla bought rooftop solar manufacturer and installer SolarCity, it had teamed up with the company to sell or lease combined solar and storage systems to residential customers. That agreement has grown even stronger since the merger. Now the online pricing tool for SolarCity’s new photovoltaic (PV) roof shingles is factoring the cost of Tesla’s Powerwall into a complete system.

In just the last several months, a number of other PV and storage companies have teamed up in similar joint-promotion efforts, including Vivint Solar with Mercedes, Sunrun with LG Chem and SolarWorld with Sonnen. Comparing the addition of a storage option to a standard rooftop PV installation to an automobile sales upgrade, Manghani said this approach is a classic upselling/cross-selling opportunity, and it offers savings for both the customer and manufacturers.

“It’s an easier sell than having to sell a $7,000 or $8,000 storage system on its own,” he said, noting the obvious appeal of storage to customers already interested in self-sufficiency.

Soft costs, such as advertising and other customer-­acquisition efforts also are spread across two sales, and installation can be done by a single crew instead of two.

Lasting impact

Despite the growing importance of utility-scale and residential storage systems, EVs remain the largest market for lithium-ion battery manufacturers. Demand is driving extraordinary manufacturing expansions around the globe, and Tesla has made the biggest impact in the automotive industry, first through its pioneering luxury vehicles and now with its mass-market Model 3. As production ramps up for this new automobile and the batteries required to power it, Goldie-Scot sees these efforts as historically important, regardless of whether projected sales targets are met.

“It will still have had a huge impact on the market in terms of encouraging its competitors to scale up manufacturing and adjust their cost structures,” he said. “In terms of both industries, this significant investment and rapid scaling up is clearly having meaningful impact on battery prices and performance and different supplier relationships.”

About The Author

ROSS has covered building and energy technologies and electric-utility business issues for more than 25 years. Contact him at [email protected].






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