Tesla Bets on the Gigafactory
Consistent Strategy but… Smart Move?
A few days ago Tesla Motors announced an agreement with Japanese owned Panasonic Corporation to build up and run a Gigafactory (lithium-ion batteries plant) in California . These batteries (also known as LIB) are used by Tesla to fuel their Electric vehicles. An increasing demand for fancy, top tier, elegant EV’s creates a growing need for more batteries. Panasonic had previously been the supplier for this key component, however, Tesla’s plans require a bigger and faster supply chain expansion.
The Gigafactory will have the capacity to produce 50 times the amount of batteries used by cars last year in order to keep the ability to satisfy demand. The most basic vehicle, Model S, has a price of U$D 63,500. The estimated time of delivery as of today feeds a five month turn around. It is clear that demand exceeds capacity. a key factor to why Tesla is willing to invest an improved supply chain of one of their main components (and additionally the most expensive one). But there is more to say about it...
Patents Away
In June 2013 Tesla announced they wouldn’t initiate patent lawsuits against those who want to use their technology . This was a major breakthrough against the traditional way of dealing with patents and intellectual property. Elon Musk says he is in favour of an open-source model and further believes in the need to boost the EV revolution. This will only be achieved if other main car manufacturers embrace the technology and infrastructure that is leading the change.
Doing this is an excellent way to ensure that the EV movement solves technological challenges, fostering collaboration between companies currently working separately on each challenge they may face in the development of a new standard.
Defining a Standard
In addition to the release of patents, Elon Musk stated that Tesla will open up its Supercharging technology to help create a universal standard for all modern cars. Customers whom have electric vehicles, even from other car manufacturers, may use the network of supercharging stations which Tesla has already deployed. A remarkable feature of these stations is that their use is free. This constitutes both a big advantage for the development of the EV as a standard but also a big risk for traditional fossil fuel companies that may see their revenue model hindered drastically if this plan succeeds. There is the danger of getting into people’s mind the idea that fuel/energy is for free.
If other manufacturers want to use the Supercharger network stations they require an investment and adoption of the same cost structure. Musk has stated that “Each adoptee will need to contribute capital costs proportional to their fleet’s usage of the network.”
Massification of the EV
If EV can truly replace the gas-powered cars, it is required to make them affordable. Widespread growth demands cheap prices. Tesla’s Model 3 (the new Tesla’s electric vehicle coming in 2015) would be priced around U$D 35,000, half the price of the previous car launched –the Model S- . This only reinforces the consistency on Tesla’s strategy to make the EV the new standard.
Battery Bet
The Gigafactory constitutes a strong bet on the future of Lithium-Ion batteries. Although it serves perfectly to the short term objective of making the most expensive component of Tesla’s car cheaper, it may be a false step if the LIB is replaced by newer and better technologies on batteries. What about other sources of energy or other technologies being developed? Some breakthroughs have been made on the traditional Lithium Ion Battery . But still different technologies are being developed and may offer more suitable options to foster the EVs. For example, a Dual Carbon Battery developed by Power Japan Plus allows a charging rate of 20 times the rate of current lithium-ion batteries. Instead of using expensive metals as nickel they have developed a method using carbon which is also 100% recyclable .
Challenges Ahead
Tesla’s strategy is without a doubt bold for many reasons. Believing in the future of the EV and envisioning it to becoming a reality requires consistent actions in parallel. Offering the use of their intellectual property, opening their supercharging stations network, and launching more affordable electric cars through a cost reduction in its main component is a strong signal to the market and intelligent way of making this long term objective come true. The question seems to be if betting so strongly in the development of the LIB is the most effective way of accompanying their strategy or if perhaps it may become an anchor that makes the ship of the EV lag in the port of an older technology. Will Tesla be willing to swap to a newer and more effective technology on battery cells after the huge investment they are about to make? We will have to wait for the answer.
References
(1) http://www.teslamotors.com/about/press/releases/panasonic-and-tesla-sign-agreement-gigafactory
(3) http://www.teslamotors.com/blog/all-our-patent-are-belong-you
(8) http://www.cnet.com/news/japanese-company-promises-revolutionary-new-electric-vehicle-battery/
