Tesla Gigafactory Worth 10x What They’re Paying To Build It

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Tesla Gigafactory Worth 10x What They’re Paying To Build It

Tesla expects to shell out $5 billion on its gigafactory when all is said and done, but one analyst has invited a heap of criticism by saying that he believes its value is closer to $50 billion. As a point of reference, the automaker’s market capitalization currently stands at around $32.15 billion. Global Equities Research analyst Trip Chowdhry attaches such a high valuation to the facility because he sees such great revenue potential emanating from it.

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In fact, he thinks the gigafactory will help Tesla and its battery partner Panasonic rake in up to $100 billion in sales in the next two decades. Further, he said it will enable the automaker to become eligible for more state subsidies on top of those it has already secured for the facility. He compared Tesla to Amazon, which started out as an online book retailer but now has its fingers in all corners of the retail space, plus the cloud, saying that he sees potential for Tesla to do something similar in the area of batteries and electric vehicles.

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The analyst terms the gigafactory as Tesla’s “new industry creation activity,” which he said essentially means that the potential revenue it could create is much more than what people currently realize. Further, Chowdhry sees the company not as an automaker that also builds batteries but as a battery maker that also builds automobiles, reports Teslarati.

Tesla’s future hangs on the gigafactory

There’s no denying that the gigafactory plays an important role in what Tesla aims to do, especially when it comes to the Model 3. The automaker is targeting 2018 as the year it begins producing 500,000 cars per year, but most analysts agree that’s a tall order, especially since it means that the company is attempting to accelerate plans that were already ambitious when it aimed to produce that many cars annually by 2020.

In order to price the Model 3 at around $35,000 to start, Tesla will need the gigafactory to cut the production cost of its batteries by a third. Indeed, last week the automaker’s management implied that they’re about to take a huge stride forward in battery technology. At the annual meeting, they said they could hit almost 105 gigawatt-hours’ worth of battery cells or 150 gigawatt-hours of battery packs, which would be triple the current output. According to Bidness Etc, this is almost triple the amount of lithium-ion batteries produced on the entire globe annually.

Tesla shares edged higher by as much as 0.59% to $220.29 during regular trading hours on Monday.

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Michelle Jones is editor-in-chief for ValueWalk.com and has been with the site since 2012. Previously, she was a television news producer for eight years. She produced the morning news programs for the NBC affiliates in Evansville, Indiana and Huntsville, Alabama and spent a short time at the CBS affiliate in Huntsville. She has experience as a writer and public relations expert for a wide variety of businesses. Email her at Mjones@valuewalk.com.
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  1. Where do you come up with “In order to price the Model 3 at around $35,000 to start, Tesla will need the gigafactory to cut the production cost of its batteries by a third”.

    Four years ago, Tesla said the cost of their 85 kWh battery pack was $12K. Tesla hasn’t said what the battery size of the Model 3 will be yet, but it’s estimated that it’ll be around 50 kWh. That suggests the battery pack would have cost them just over $7K to have built four years ago. They’ve said the battery prices come down by about 5% per year, which would suggest the battery today would be just under $6K. That leaves them with another $29K in the budget to build the rest of the car and make a profit. Cutting it by another third obviously would be good, boosting their profits per car by another $2K, but it really doesn’t seem necessary to me.

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