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News broke last week that electric car maker Tesla (Nasdaq: TSLA) selected Nevada to be the home of its massive battery factory, dubbed the Tesla “gigafactory.”
Building the gigafactory is a huge gamble for Tesla and its high-profile CEO Elon Musk.
When the factory comes online in 2020 it will be able to produce more lithium-ion batteries than any other lithium-ion battery factory in the world.
In fact the Tesla gigafactory will be able to produce more lithium-ion batteries than all of the current factories in the world combined!
I read an article over the weekend that discussed how the gigafactory is a huge gamble for Tesla. Of course, anytime a $34 billion company commits to building a $5 billion factory it is a huge gamble. But the author suggests that, more than anything, the Tesla gigafactory is a gamble on future demand for electric cars.
I disagree.
Tesla is only forecasted to sell 240,000 cars in 2020 when the gigafactory comes online. But the factory is capable of producing batteries to power 500,000 cars each year. The author of the article I read suggested that the gigafactory is a massive gamble on Tesla’s ability to boost demand for electric cars.
But building the gigafactory isn’t just about cars for Elon Musk. The Tesla gigafactory isn’t a Tesla gamble on demand for electric cars. It is Elon Musk gambling on the way he sees the future of the energy industry.
It is well known that Tesla and SolarCity (Nasdaq: SCTY) are – at the very least – friendly. Musk was involved early with both companies and remains the Chairman of SolarCity’s board.
Tesla features SolarCity solar panels in its network of Supercharger stations, a network that is rapidly expanding to meet the demands of Tesla’s customers. There are many examples of Tesla/SolarCity co-branding.
The Tesla and SolarCity story is really a story about the way Elon Musk sees the future.
In Elon Musk’s future, people and businesses will use SolarCity solar panels to gather the sun’s energy. They will then use this energy to power their Tesla cars, their homes, businesses and personal electronics. We already have the sun, we already have SolarCity and we already have Tesla.
The only piece that’s missing is the batteries.
That is what the Tesla gigafactory is all about. It is so much more than a gamble on the viability of the electric car. Tesla’s gigafactory is a gamble on the future of energy, the future that Elon Musk believes is inevitable and for which he has put his personal wealth and reputation on the line.
While I have sold out of my Tesla and SolarCity positions due to valuation, I fully believe in Elon Musk’s version of where our energy industry is headed. Whether or not it happens any time soon, we will eventually run out of oil, natural gas, coal and uranium.
The end of those fuels may still be a long way away. But the energy that will replace them is already in sight. Elon Musk thinks that he has seen the future. And with the Tesla gigafactory, he is placing a huge bet that solar, Tesla and SolarCity are it.
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