Tesla's Gigafactory Doubles in Size, Brings Battery Cell Production to U.S.

By Daniel Sparks Markets Fool.com

When I toured Tesla Motors' (TSLA) Gigafactory in July, it was already a massive structure. With an 800,000-square-foot footprint and 1.9 million square feet of manufacturing space when including the building's several levels, the factory would take hours to walk through. Even more, the company had already tooled significant portions of the factory and had begun streamlining production of Tesla Energy packs (the cells used in the packs were still made in Japan).

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But a tour of the Gigafactory today would reveal some massive changes. First, in less than six months, the building's total footprint has doubled to 1.9 million square feet and its operational square feet is 2.6 times what it was, at 4.9 million square feet. Second -- and perhaps more important for Tesla's business -- the company has already begun mass production of lithium-ion battery cells at the factory.

 

Building battery cells

 

"Today at the Gigafactory, Tesla and Panasonic began mass production of lithium-ion battery cells," Tesla announced in a blog post on Wednesday.

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Tesla said it will be mass producing its new high-performance cylindrical "2170 cell," which CEO Elon Musk has said is both the highest energy density cell in the world and is also the cheapest.

Production of battery cells for qualification purposes started at the Gigafactory last month, the company said. But today's production is meant for Tesla's energy storage products, including its Powerwall 2 and its Powerpack 2 energy storage products. And Model 3 is up next, with cell production for the vehicle's batteries scheduled to begin in Q2.

Tesla's ability to quickly expand production from energy storage packs to battery cells for energy storage products and its Model 3 continues to highlight the company's aggressive and unique construction approach of building the Gigafactory in phases so that Tesla, Panasonic, and other Tesla partners can begin manufacturing immediately in finished sections.

"Our phased approach also allows us to learn and continuously improve our construction and operational techniques as we continue to drive down the cost of energy storage," the company explained.

The beginning of cell production at Tesla's Gigafactory is good news for investors. With Tesla planning to launch its lower-cost, higher-volume Model 3 in the second half of 2017, the company will need Gigafactory-based cell production both for its lower cell costs and its higher-volume cell production.

 

Model 3 will likely be the most American-made car

 

One interesting takeaway from this news is that by bringing cell production to the U.S., Model 3 will likely become the world's most American-made vehicle. After Tesla brings cell production from Japan to the U.S. for its vehicles, the percentage of content in its vehicles made in the U.S. could jump from around 55% to around 90% -- a figure that would give Model 3 more American-made content than any other vehicle.

Furthermore, Tesla's narrative of U.S. job creation is arguably an important factor as President-elect Donald Trump takes office. Tesla's emphasis on U.S. job creation will likely resonate with one of the president's biggest priorities: boosting U.S.-based manufacturing. Musk has said the Gigafactory will directly employ around 10,000 people at peak production, and Tesla estimates the factory will indirectly create between 20,000 to 30,000 additional jobs in surrounding regions.

For Tesla, this is just the beginning. The company reminded investors today that while Gigafactory construction has progressed by leaps and bounds, the factory is less than 30% done. Tesla's ambition for the factory is enormous. By 2018, it plans to produce about 35 gigawatt-hours of lithium-ion battery cell capacity per year, or about as much as the rest of the world's battery production combined today. And when the structure is complete, the Gigafactory will be the biggest building in the world measured by footprint.

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Daniel Sparks owns shares of Tesla Motors. The Motley Fool owns shares of and recommends Tesla Motors. The Motley Fool has a disclosure policy.

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