Tesla Motors and Panasonic Announce $5 Billion Gigafactory

Tesla Motors (TSLA) announced on Thursday that it has reached a deal with Panasonic concerning its plans to open a jointly operated gigafactory which will supply the electric auto manufacturer with lithium-ion cells that are required for its electric cars to operate.

Investor Place informs us that Tesla has committed to assembling the cars’ battery packs and maintaining the buildings and associated utilities at the soon to be built gigafactory while Panasonic will manufacture and supply the lithium-ion battery cells.

Tesla's proposed Gigafactory.
Tesla’s proposed Gigafactory.

The next step concerning Tesla’s and Panasonic’s joint gigafactory venture is no small feat. The soon to be built gigafactory will supply batteries for all of Tesla’s Model S sedans and its upcoming Model X SUV crossovers. The San Jose Mercury News tells us that each Tesla Model S sedan is powered by more than 7,000 lithium-ion battery cells and the amount of labor and material to produce so many battery cells on an increasing scale is immense. The San Jose Mercury News goes on to report that the proposed gigafactory will cost a staggering $5 billion, occupy 10 million square feet, and eventually employ 6,500 workers. Tesla has good reason for laying the ground work for such an enormous facility. Tesla Motors reported today that it delivered 7,579 electric Model S sedans in the second quarter and has revised its expectations for 2014 deliveries of its electric cars upwards to more than 35,000 cars. By building its proposed gigafactory, Tesla will be able to significantly drive down the costs of producing its battery packs and pass the savings along to its customers. Telsa expects to sell its upcoming Model 3 for $35,000, or half the cost of its cheapest Model S. Learn more about Tesla’s Model 3 at the Inquisitr.

The San Jose Mercury News goes on to tell us more about why Tesla Motors is so inclined to undertake such a momentous project and incur the costs behind bringing the proposed gigafactory to life. Karl Brauer, a senior analyst for Kelly Blue Book, told the San Jose Mercury News that, “By building its own battery facility, Tesla can take full control of its battery supply and eliminate that restraint, a shift that could mesh effectively with increased global distribution and demand from China.” Mr. Brauer did, however, warn of a potential risk to Tesla in its ambitious venture when he further stated that, “…long-term sustainability and profitability will require a high-volume, affordable model with widespread appeal. That remains the big challenge Tesla must overcome in the next few years.”

Tesla Model 3.
Tesla Model 3.

Tesla Motors has not yet announced the location of its future gigafactory, although the electric auto manufacturer is currently considering future sites in California, Nevada, New Mexico, and Texas. The bigger question concerning the future of Tesla Motors and its sporty electric cars is this; will its $5 billion gigafactory joint venture with Panasonic pay off?