Venture capitalist Steve Jurvetson (left), shown here on the roof of the Gigafactory with Tesla CTO JB Straubel (right), has invested in Elon Musk through SpaceX and Tesla. Image source: Steve Jurvetson/Flickr.
What if the company that stood to benefit the most from the Gigafactory wasn't Tesla Motors ?
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Now, I know what you're thinking. How could a company spend up to $5 billion constructing a world-class manufacturing facility and not be first in line to reap the rewards? To be clear, the Gigafactory will likely be a very valuable asset for Tesla, especially considering that capacity can be monetized through automobile, household, and industrial energy storage applications.In fact, by 2020 the Gigafactory is expected to be able to manufacture sufficient energy storage devices to supply 500,000 vehicles per year in addition to stationary batteries.You've heard all of the numbers before, of course.
However, investors might want to ponder the Gigafactory's potential impact on Tesla stock, which is currently trading at $23 billion. Will it be a catalyst? No doubt. But considering that $5 billion in capital expenditures is a drop in the bucket in the automobile industry, it might not provide the boost investors anticipate after factoring in the company's current market cap.
For an investment opportunity that could capture even more value, proportionally speaking, from the Gigafactory, we'll need to find a company with a smaller market cap that can monetize the massive capacity of the facility. It might not be the most obvious choice, but environmental services company US Ecology -- worth just $1 billion at the moment -- stands out immediately in my mind. Here's why.
Mo' batteries, mo' hazardous wastesThere's some pretty simple logic behind the potential for US Ecology to capture the most value from Tesla Motors' energy storage device manufacturing facility. While many investors are busy considering the Gigafactory's output, few are thinking about the entire production process. Manufacturing and assembling 50 GWh of battery packs -- enough to double current global supply -- will create a sizable amount of hazardous waste, too.
State and federal regulations mandate exactly how such wastes must be managed -- and US Ecology specializes in the treatment and disposal of hazardous wastes ranging from airplane deicing fluid to, well, battery packs. So what exactly is in a Tesla Motors battery? From an SEC filing:
The need to dispose of lithium wastes from production -- not from used batteries -- creates a sizable potential opportunity for US Ecology. But that alone is not enough to make it feasible.
What about the logistics?The logic as to why US Ecology could benefit from the Gigafactory is in place, but the logistics need to work out as well. Fortunately, the company's largest treatment and disposal site is located in Grand View, Idaho, which, as we'll see just below, is advantageously close to the Gigafactory. The site isn't explicitly mentioned as a potential destination for battery wastes in SEC filings, but it does account for 43% of U.S. Ecology's total capacity by acreage. It's also the most youthful landfill in the company's portfolio with 121 years of life left, while the next-youngest site has just 41 years remaining.
Source: SEC filings.
Better yet, Grand View is just 440 miles from the Gigafactory's loading docks in Reno, Nev. The US Ecology landfill is also perfectly situated on the Union Pacific Railroad with multiple rail transfer stations on-site. Here's a map of the vehicle route between the two locations for those of us who aren't geography buffs.
Note: Image source: Google Maps.
Say what you will about the relative closeness of being separated by 440 miles, but it's a remarkable coincidence that one of the world's largest hazardous treatment and disposal landfills and the world's largest battery manufacturing facility are that close.
What's the potential opportunity for US Ecology? It depends on the efficiency of the manufacturing process utilized by Tesla Motors, the end-volume of wastes, and the disposal cost of those wastes. While waste volumes are difficult -- perhaps impossible -- to predict at the moment, consider the following:
- US Ecology has guided for total revenue in the range of $585 million to $620 million for 2015.
- A company named Simbol is constructing a facility capable of churning out 15,000 metric tons of lithium per year from recycled catalysts used in geothermal plants -- and will presumably be the closest lithium source to the Gigafactory. Of course, most of that won't become waste, but even a few percentage points adds up.
- Lithium isn't the only material used in the process that creates hazardous waste requiring special processing, transportation, and storage.
- The Gigafactory will produce enough energy storage devices to store 30,000,000 kWh of electricity at full capacity for phase 1, which will increase to 50,000,000 kWh after a planned expansion. That's a lot of new lithium batteries -- enough to more than double current global production.
So what's the potential opportunity for US Ecology? It's impossible to put a numerical value on it, but given the massive size of the Gigafactory and the relatively small size of US Ecology's current revenue, even processing a relatively small amount of waste (for a very long time) could create big value for investors.
Will Tesla Motors tap US Ecology?This is pure speculation at this point. Nothing guarantees the pair will work together in the future. But the hazardous wastes coming from the Gigafactory will have to be properly disposed of somewhere. And since there are less than a handful of companies and locations in North America, let alone in the same geography,even capable of providing the necessary services, US Ecology does stand out.
However this plays out, this thought process highlights the fact that investors can find potentially lucrative investment opportunities hiding in plain sight. Understanding the concept of proportionality can go a long way in investing -- saving you from big losers that never live up to the hype and helping you to find big winners before others catch on.
The article 1 Little Company That Could Win Big From Tesla's Gigafactory originally appeared on Fool.com.
Maxx Chatsko has no position in any stocks mentioned. Check out hispersonal portfolio,CAPS page,previous writingfor The Motley Fool, and follow him on Twitter to keep up with developments in the synthetic biology field.The Motley Fool recommends Tesla Motors. The Motley Fool owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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