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Gigafactory - Reading Between The Lines

After reading about the Gigafactory (official blog by Tesla, not analyst opinions), there seems to be a lot of information assumed and/or "announced", without actually doing so. There is a lot of information that is identified (in my opinion) that makes me extremely excited about this plan. I'll try to list some with my reasons below, but ask that you help add, update, or correct my perception.

1. It almost screams the future guidance of 500,000 cars per year delivery in 2020, but didn't clearly state it as such. This could mean one of two things: i. Tesla is expecting to build and deliver roughly 500,000 cars/year around 2020; ii. They expect to have roughly 500,000 battery packs sold between Tesla and potential partners for electric cars. This leads me to my next point...

2. Something that has been in the back of my mind is why Musk has openly/eagerly pushed for competition in electric car industries. Part of this is because no one can truly challenge the Tesla currently, but I think there is something more. I think he is trying to get his arms into the battery pack systems and infrastructure (SuperChargers) to support the electric cars. In short, in 2020, Tesla may actually have the MUNI (sp?) plant be at max capacity (200-300k?) and then not worry about expanding too much afterwards. Much of their profits will start coming from contracts by competition's use of the SC network and buying of the battery packs. Maybe they will have some more factories and build 500k-1m vehicles/year, but still think they will start making large portion of their profits from other areas.

3. Battery technologies challenges: One major concern that I've had about Tesla's long term growth was the improvements in battery technology. Though that would greatly improve the viability of all electric cars in the market, it would have allowed other potential competition to leap ahead of Tesla, or at the least jump right up and start making vehicles at similar scale. What this Gigafactory announcement tells me is that Tesla is not going to jump into one technology and let other pass it by. They are effectively setting up a "coalition" of many battery producers to build this factory out together and profit together. In turn, they are also going to increase the potential of being first to the best effective technologies (note, though the text in the blog mentions lithium-ion, those words not mentioned in the pdf anywhere... only mentions "cell supplies"). Also, whatever they end up building, will automatically being the mainstream! This not only removes my concerns, but even more bullish on the company's growth over the next decade! Well played!

4. Solar power: Though this doesn't specifically call it out, we can almost assume that this means a huge contract for SolarCity! Probably similar what has been talked about for the SuperCharger network. Tesla puts up the initial cost; SolarCity does full maintenance... all for great rates! Just leading to closer connections between the companies... along with the Tesla battery packs for home power storage discussions.

5. Going after states that have shown resistance: I love how they are specifically including Texas in the final four. I'm sure there are appropriate reasons to include Texas, besides for the political ones, but none the less, this message is going to be well heard across the country from anyone that is willing to take couple million from unions to push away Tesla, when they can potentially benefit far more by accepting Tesla.

6. Proximity of locations: This still shows the Fremont location as the central hub. This tells me that either the MUNI (sp?) plant has the capability to build 500,000 vehicles per year, or they will expand in the region.

7. Growth commitment in the USA: Truly, they could have planned to put this factory anywhere in the world! Love their commitment to bringing back the strength, knowledge and work back into the US. Why can't everyone just see the true capitalistic success story that Tesla really is?

8. 70KWh/100KWh average packs: Based on the "Cell Output" of 35GWh/y @ 500k vehicle volume, that means an average of 70KWh pack. If we assume that the majority of these 500k vehicles will be the GenIII models with smaller packs, this leads me to think that we could be seeing 100KWh packs for the Model S/X soon. Using the "Pack Output" figure of 50GWh/y, this means a 100KWh pack average, which means that we could see an announcement of a much larger sized pack (125KWh? or more?). Gigidy-Gigidy... awww yeah!

9. Difference between "Cell Output" and "Pack Output"? I didn't understand what this means? What are they saying from this? I can assume some things, but would rather ask for more educated thoughts.

10. On a side note (not in this announcement), I do hope they can crank out the SuperChargers soon. I would like them to spend roughly $100m/year on this build out through 2016. Which roughly translates to over 300 installations per year (assuming $300k/location... not sure where, but this is what I recall as a cost on another thread). So that would mean roughly 1,000 SuperCharger locations world-wide by the time the GenIII vehicle launches. This would help destroy even the most aggressive estimates for sales!

I'm sure there are other things that we can come up with based on this announcement, but this message is getting long enough as is. Love to get everyone's input...

Regards,
Hitesh

ps: In case anyone high up is reading, I would really love to work for Tesla!!! ;)

Holy crap... that's a lot of text. Sorry. Spending too much time thinking about Tesla! :)

It's NUMI and was previously a joint venture between Toyota and GM and produced upwards of 400,000 cars before being shuddered then sold to Tesla.

As for why those states are being considered it likely also has to with the fact that they want the factory to be mostly, if not completely powered by wind and solar and those are both highly available in those states.

Some great thoughts for sure!

Cheers!

Oops, that should be 2 M's. NUMMI.

It stands for New United Motor Manufacturing, Inc.

http://en.m.wikipedia.org/wiki/NUMMI

gone;
Actually, it was NUMMI. It's not "the Fremont plant". Two Ms, one e. ;)

typo: it's now "the Fremont plant".

Hitesh, the difference between a cell and a pack is that a cell is the individual battery. The ones Tesla uses is roughly the size of a AA battery. The pack in the MS is made up of approximately 7000 of these cells.

Had to leave a few "easter-eggs" for Brian H to find and comment on of course! :)

Thanks for the NUMMI and "Fremont Plant" corrections.

@jordanrichard - Thanks, but that isn't what I was referring to. The question was more about the statement in the release. Said roughly 35GWh of cell production/year, while 50GWh of pack production/year. Not sure how to understand that part.

I think they plan to continue to buy cells from other manufactures and to do all assembly of the battery packs at the new factory.

@ghillair - So, make about 35GWh worth of cells at the Gigafactory, and buy about 15GWh worth from other manufacturers. Totaling 50GWh. Okay, makes sense.

Then this means that we are talking about an average battery pack size of 100KWh (50GWh for 500k vehicles). Looks like some very good news coming over the next 3 years!

Based on the following assumptions:
a. 500k Tesla vehicles per year
b. 500k battery packs per year
c. 100k Model S and X variants
d. 400k Gen III variants (assuming small sedan and small suv by 2020)
e. 500k battery packs utilizing 50GWh
f. 60KWh and 85KWh will be utilized for the Gen III models, which will give them range greater than what the current Model S gets, due to lesser weight - this averages out to 70KWh-ish for these
g. Which means the Model S and X will get packs in the range of 125KWh, 150KWh, or even 200KWh... to make a total average of 100KWh. I think that's just getting too big!

My guess: We will probably see 100KWh and 125KWh for the larger vehicles (effective range of around 400miles). Total average pack size will be around 80KWh, meaning they should be able to put out about 600k battery packs per year starting 2020. Therefore, my estimates will be for the 600k vehicles built for 2020 (as they will be mostly supply constraint).

Sounds unrealistic, but nice.

All the battery packs may not go to Tesla Vehicles. Some will go to SolarCity for storage application and some may be sold to other vehicle manufacturers.

Not certain if the below copy and paste from my Excel spreadsheet would at least provide a decent format, or if my assumptions of P/E ratio is correct. In case I understand P/E ratio concepts and that you can not read the below, here is the summary.

If 2020 figures are as such:
Model S sales: 50,000
Model X sales: 50,000
Gen III sales: 350,000
Battery Packs to Partners: 50,000
SuperCharger Licensing: 50,000

Stock Value @:
@25 P/E Ratio: $750
@50 P/E Ratio: $1,500
@100 P/E Ratio: $3,000

Potentially unrealistic, but not bad options at all. :)

Regards.

Revenue Source # Sold/Yr Average Sales $ Annual Revenue Profit % Profit $

Model S 50,000 $95,000 $4,750,000,000 25% $1,187,500,000
Model X 50,000 $100,000 $5,000,000,000 25% $1,250,000,000
Gen III 350,000 $45,000 $15,750,000,000 25% $3,937,500,000
Battery Packs to Partners 50,000 $15,000 $750,000,000 25% $187,500,000
SuperCharger Licensing 50,000 $2,000 $100,000,000 75% $75,000,000
Totals $26,350,000,000 $6,637,500,000

Revenue Source Annual Expenses $

SuperCharger Licensing
Operational Expenses $2,250,000,000
Other Expenses $750,000,000
Totals $3,000,000,000

Annual Earnings $ P/E Ratio Market Value $ # Shares Stock Value
$3,637,500,000 25 $90,937,500,000 122,000,000 $745.39
$3,637,500,000 50 $181,875,000,000 122,000,000 $1,490.78
$3,637,500,000 100 $363,750,000,000 122,000,000 $2,981.56
$3,637,500,000 122,000,000


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