The Future Of Energy Hangs On This $5bn Factory


Automaker Tesla’s mission is aiming to accelerate the world’s transition to sustainable energy. To achieve that goal, it must produce electric vehicles in sufficient volume to force change in the automobile industry. With a planned production rate of 500,000 cars per year in the latter half of this decade, Tesla alone will require today’s entire worldwide production of lithium ion batteries. The $5bn Tesla Gigafactory was born of necessity and will supply enough batteries to support the company's projected vehicle demand.
Grand Opening
In July, Tesla CEO Elon Musk and CTO JB Straubel launched its new gigafactory to an invite-only crowd.

The factory is crucial in order for Tesla to achieve its goal: To accelerate the world’s transition to sustainable energy. The factory is expected to reduce the per-kilowatt-hour cost of Tesla lithium-ion battery packs by more than 30 per cent, which will in turn drive down the cost for its electric vehicles. Without the factory, Tesla’s mass-market Model 3 can't be achieved.

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Construction during 2014. Source: Tesla.comThe factory, which will cost at least $5 billion to build, was only 14 per cent completed win July.

The footprint of the completed factory is 6 million square feet, a size that could accommodate 93 Boeing 747 jets, or—according to CEO Musk—"50 billion hamsters".

... That's an impressive amount of hamsters.

Tesla broke ground on the Gigafactory in June 2014 outside Sparks, Nevada - "a real 'get things done' state," according to Musk - and Tesla expects to begin cell production in 2017. By 2020, the Gigafactory will reach full capacity and produce more lithium ion batteries annually than were produced worldwide in 2013.

In cooperation with Panasonic and other strategic partners, the Gigafactory will produce batteries for significantly less cost using economies of scale, innovative manufacturing, reduction of waste, and the simple optimisation of locating most manufacturing process under one roof. Tesla expects to drive down the per kilowatt hour (kWh) cost of our battery pack by more than 30 percent. The Gigafactory will also be powered by renewable energy sources, with the goal of achieving net zero energy.

The name Gigafactory comes from the factory’s planned annual battery production capacity of 35 gigawatt-hours (GWh). “Giga” is a unit of measurement that represents “billions”. One GWh is the equivalent of generating (or consuming) one billion watts for one hour—one million times that of one kWh.

Tesla and SolarCity Combine
In July, Tesla made a proposal to purchase SolarCity and in August announced that the two companies have reached an agreement to combine, creating the world's only vertically integrated sustainable energy company.

Tesla is getting ready to scale its Powerwall and Powerpack stationary storage products and SolarCity is getting ready to offer next-generation differentiated solar solutions. By joining forces, the companies can operate more efficiently and fully integrate their products, while providing customers with an aesthetically beautiful and simple one-stop solar + storage experience: one installation, one service contract, one phone app.

Tesla expects to achieve cost synergies of $150 million in the first full year after closing while also expecting to save customers money by lowering hardware costs, reducing installation costs, improving our manufacturing efficiency and reducing our customer acquisition costs.

Key terms: this is an all-stock transaction with an equity value of $2.6 billion based on the 5-day volume-weighted average price of Tesla shares as of July 29, 2016. Under the agreement, SolarCity stockholders will receive 0.110 Tesla common shares per SolarCity share, valuing SolarCity common stock at $25.37 per share based on the 5-day volume weighted average price of Tesla shares as of July 29, 2016.

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