WHY THIS MATTERS IN BRIEF
By building a vertically integrated company that has control of it’s supply chain and product R&D Musk can realise efficiencies of scale, disrupt industries and use it to catalyse the growth of his companies, namely OpenAI, SolarCity, SpaceX and Tesla.
Twenty miles east of Sparks, Nevada, a factory is rising from the red dirt of the high desert. It doesn’t look like much, at the moment – just a few completed structures amid exposed steel girders, but this building, dubbed the Gigafactory, is the key to Elon Musk’s sweeping plan to reinvent both the transportation, and the energy industries.
The Gigafactory is where Tesla Motors will build the batteries that power its electric vehicles. The company has long imported batteries from Asia, but if it is to meet its CEO’s goal of producing 500,000 cars a year, it must build those batteries here. There’s simply no other way to meet its own demand, because the company expects to use more batteries in 2020 than were produced worldwide in 2013.
“The factory is the machine that builds the machines,” Musk says, sitting in the lobby of his new building.
When it’s finally finished, the Gigafactory will cover 5.8 million square feet. Musk, never given to understatement, promises it will be beautiful. Plans call for a jewel shaped building topped by a roof glittering with solar panels.
Crews broke ground in June, 2014, and Musk says EV batteries will start coming off the assembly line next year in 2017. That seems optimistic, given that just 14 percent of the factory is finished, but 1,000 people are working seven days a week to hit that deadline.
Those crews work among the Tesla employees already building PowerWall and PowerPack home and industrial energy storage units using cells built at Tesla’s factory in Fremont, California but eventually the company plans to start producing cells, which are combined to form the big packs in cars, right here at the Gigafactory.
Robots will do much of the work the factory space with its shiny grey floors and white walls with red trim. Huge red X-shaped braces secure the walls, providing a measure of seismic security. Engineers work at desks not far from the production line, so they can keep a close eye on the machine that will make the machine. A sign taped up in the break room reads “Reno Supercharger,” a reference to the company’s EV quick-charge stations.
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The factory will be heavily automated, but machines can’t do everything, so the factory also will employ some 6,500 people when it hits full production.
Finishing the factory is imperative. Tesla plans to start building the Model 3 sedan – arguably Tesla’s most important car with billions of orders already booked, in 2018, and wants to produce half a million vehicles annually the same year. The only way that works is if Tesla can dramatically increase battery production while bringing down costs. Global demand for the limited supply of lithium-ion batteries, which are used in everything from power tools to cell phones to automobiles, will grow as automakers build more hybrids and EVs.
“You just look at the math. If you’re going to be 50 plus percent of a market, you’re in a really bad position unless you control that supply chain,” says Brook Porter, a senior partner at Kleiner, Perkins, Caufield and Byers, “Musk had to take control of it.”
Gigafactory, a joint venture with Panasonic and other partners, brings everything needed to build batteries under one enormous roof. Raw materials like lithium will eventually arrive by rail. Tesla won’t be getting the stuff directly from a mine, but the supply chain doesn’t start far from there.
“It will be a fairly basic level of incoming material that gets built up,” Musk says.
The assembly lines will do everything from make the individual cells – cylinders a bit bigger than an AA battery – to assembling the immense packs that power a Model S or store energy in someone’s garage. Tesla doesn’t disclose its costs, but says doing it all in house will drive down the cost of a battery by 30 percent, and when you realise that 70% of the cost of producing a Tesla is in its battery suddenly that means that Musk can make the cars affordable for the mass market. And that model, by no sheer coincidence, is the Model 3 which took just over 400,000 orders in just a few months.
Controlling all aspects of manufacturing also lets Tesla embrace new battery chemistries and technologies sooner. It won’t have to wait for a supplier to develop the cells, it can simply start producing them. That will be essential as the company implements Musk’s Master Plan Part Deux, in which he outlines his plan to create a vertically integrated company that builds electric vehicles, batteries to store the power to propel them, and the solar panels to generate that power. He also wants to electrify everything from pickups to busses to 18-wheelers.
This being Musk, the big ambitions don’t end with just the one factory, Musk wants to build Gigafactories everywhere it needs batteries, including Europe, China, and India and here in Nevada, the company bought another 1,864 acres next door. That’s enough room to double the Gigafactory’s size. Just in case. And Musks plans might not stop there because he recently said, as he was walking around the new factory with Leonardo DiCaprio, that if you extrapolate it out 100 Gigafactories could produce enough renewable energy packs to replace all of the worlds current energy based carbon needs. In other words, 100 factories could replace every power plant on the planet.
Hmmm…. interesting and maybe that’ll be the topic of one of my articles in the future.