The new year is shaping up to be a make-or-break year for electric vehicle innovator Tesla Motors Inc (NASDAQ:TSLA). That’s because we finally get to see whether CEO Elon Musk’s vision of a fully integrated clean-energy company — spanning production, storage and end-use of renewable energy — can come to fruition. Needless to say, TSLA stock holders will be watching with eyes as wide as dinner plates.
Last year, the major piece of the puzzle was the
bailout buyout of fellow Musk company, SolarCity. That deal will supposedly tuck in the generation part of the plan.
But right now, the story is all about storage. Tesla finally flipped the switch on its massive battery production facility — dubbed the Gigafactory.
Without it, there’s no way Tesla Motors can deliver on its lofty long-term goals. Nor can the company support the lofty price on TSLA stock, either.
The Gigafactory not just a battery farm. It’s a critical piece of the Tesla Motors story.
Tesla’s Big Plans for Its Big Gigafactory
Lithium batteries make the world go ’round. Storage of energy is a key component in basically everything, from solar panels to your smartphone. And lithium battery production has long been dominated by Japan, China, and other southeast Asian nations; roughly 88% of the world’s battery production comes from the region.
Tesla’s problem is an ambitious goal of delivering 500,000 vehicles in 2018 … which will take a ton of lithium batteries. Current production isn’t up to snuff, by a lot. There’s a significant shortfall.
Like most Elon Musk solutions, Tesla’s fix for its battery problem is a large one.
A few years ago, TSLA partnered with Panasonic Corporation (ADR) (OTCMKTS:PCRFY) and started construction on a massive plant in the Nevada desert. The dubbed Gigafactory would design and build the needed batteries to arm itself — and potentially other vehicle makers, electrics firms and others — with the needed batteries to store energy. Over the spring, Musk and TSLA predicted that the facility would be able to crank out nearly 50 gigawatts worth of production by 2018 — more than the world currently produces.
On Wednesday, Tesla Motors turned on the third of the Gigafactory that is completed and started production of batteries.
The Gigafactory Is Critical
The Gigafactory’s launch is a significant moment for TSLA stock, because it will help determine Tesla’s ability to survive, and how healthy that survival will look.
Without the Gigafactory, Tesla simply can’t deliver on its EV production goals. The rest of the world does not make enough batteries, period. Plus, a lack of supply leads to another issue: affordability. The Model 3 is supposed to be an electric car for the masses that takes Tesla Motors from a hobby car for the rich to a staple for your average Joe.
But current battery prices are too high to make the $35,000 vehicle profitable. And despite its cult stock following, Tesla still is a publicly traded company, and TSLA stock holders will increasingly demand profits.