Tesla Motors Inc (TSLA) To Update Gigafactory Plans: Positive Catalyst

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Tesla Motors Inc (NASDAQ:TSLA) said last week that it would reveal some more information about its plans for the gigafactory this week in a conference call. As the time for that call approaches, analysts are beginning to speculate about what the automaker might be ready to reveal—and what it might not be ready to.

How Tesla will benefit from the gigafactory

Baird analysts believe this week’s call about the gigafactory could be yet another positive catalyst for Tesla Motors Inc (NASDAQ:TSLA). Shares of the automaker’s stock rose more than 3% yet again today. Analysts Ben Kallo and Tyler Frank reiterated their Outperform rating and $245 a share price target for the automaker. They believe Tesla could reduce the cost of battery pack assembly by building the factory, which is also an important step in the company’s goal to make a mass market electric vehicle.

They estimate that the gigafactory Tesla Motors Inc (NASDAQ:TSLA) may be planning could be big enough to produce about 30 GWh of cells. That would be enough to power 353,000 to 500,000 vehicles depending on which size of battery is being assembled: the 60 kWh or the 86 kWh pack.

The Generation III vehicle is expected to be mass produced at around $45,000 or less. Currently, the battery packs cost around $315 per kWh, although the Baird team thinks this price could be inflated. They estimate that Tesla Motors Inc (NASDAQ:TSLA) is already producing batteries at 10% to 20% below that price. The automaker said it needs battery costs to decline 30% to make the Generation III feasible. Kallo and Frank believe Tesla is targeting a $200 per kWh price for the battery, which they see is achievable while still leaving a “healthy” margin for the vehicle.

Tesla might not name partners just yet

Last week Tesla Motors Inc (NASDAQ:TSLA) management wasn’t ready to disclose the names of partners, although Panasonic was mentioned as a possible partner. After all, the company is Tesla’s top battery supplier, and the two companies have had a long relationship. The Baird team suggests that Tesla also might partner with Panasonic suppliers like Hitachi Chemical, Mitsubishi Chemical, Tanaka Chemical or Ube Industries. This would help speed up execution.

Other potential partners include SolarCity Corp (NASDAQ:SCTY) and other “battery off-takers.” SolarCity does have plans for Tesla Motors Inc. (NASDAQ:TSLA)’s batteries to use them to store solar power produced by its panels. As a result, it might be in SolarCity’s interests to partner on the facility.

Paying for Tesla’s gigfactory

Of course with big plans comes big expenses, and this is something investors will be keeping a close eye on. The Baird team estimates that Tesla Motors Inc (NASDAQ:TSLA) will be able to build its gigafactory for less than $5 billion. To figure this out, they looked at the least expensive EV battery facility they could find, which is the proposed Nissan and Renault plant in Portugal. They estimate that the plant will cost around 1.8 cents per wh. In addition, they believe Tesla could manage the full life cycle of the battery at the plant, including refurbishment, which would not only increase the life of electric vehicles but also repurpose recycled batteries for grid storage.

The Baird team also considered how Tesla Motors Inc (NASDAQ:TSLA) might pay for the gigafactory. They suggest that the automaker could offer its battery technology and intellectual property to its partners in exchange for them paying for much of the factory. However, they think the most likely scenario will involve Tesla raising capital through debt and / or equity offerings.

When and where might Tesla build?

The Baird team also has a couple of guesses in terms of location for Tesla Motors Inc (NASDAQ:TSLA)’s gigafactory. The automaker had said it wanted to build in North America, and Kallo and Frank suggest New Mexico or Nevada. New Mexico was one of the finalists to get Tesla’s auto facility, which eventually went to California. They said New Mexico would be a good location because of tax breaks and solar PV products like First Solar, Inc. (NASDAQ:FSLR)’s Macho Springs facility, which may provide enough solar power for the factory.

They say Nevada could be another option because it is where the only operating lithium mine in the U.S. is located. Building there could cut input costs if Tesla Motors Inc (NASDAQ:TSLA) is able to get its lithium from the mine. It would also be fairly close to California, making transportation to its Fremont, Calif. facility a little cheaper and easier. Nevada’s sun would also be friendly to solar power installations, and its wind would offer ample power as well. Tesla has said it will use solar and wind to run the facility, so locating in Nevada could make sense for this reason as well.

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