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This is more a comment on TSLA than GM, but I still feel it's relevant given the competition between the two. I don't understand the Gigafactory, from a capita
by Hasz 10y ago
This is more a comment on TSLA than GM, but I still feel it's relevant given the competition between the two.
I don't understand the Gigafactory, from a capital allocation point of view.
Geographically, it's not near any major lithium, cobalt, (economical to extract) rare earth, etc deposits, and it's not in a traditional manufacturing area. Maybe they're getting a sweet tax deal. There are a number of tangential benefits, like heat recycling, solar availability, USA made (given the currently protectionist administration, but that could change in less than 4 years, max 8) etc, but I'm not sure these benefits outweigh the cost of being so far from raw material and export lines.
Obviously, the Gigafactory makes batteries, a technology which improves at an unbelievably slow rate compared to virtually anything else. However, battery research is an intense area of research focus, and the whole factory is one Nobel from becoming obselete, barring (probably expensive) retooling. A game changing improvement is not a matter of if, but when.
TSLA's bet is that this does not happen until they've paid off the asset. If you makes batteries as a core business, investment in facilities is the cost of doing business. If you make cars, it's a silly and imprudent experiment in vertical integration. Why bet the farm when you can pay marginally more for your batteries and cement the luxury market you already own? Batteries are a commodity, and at TSLA's scale, they surely can negotiate a good deal. Realistically, TSLA's target market is fine with absorbing a 2 or 3% increase in battery cost that a 3rd party supplier would demand.
Given the investment in vertical integration, it seems TSLA is trying to go after the low/mid-market. Why beats me -- razor thin margins necessitate scaling incredibly quickly. They are taking an incredible risk for meager rewards in fiercely contested territory. Contrary to what most outlets will tell you, Ford/GM/Japanese automakers are not stupid. Slow, yes, but not stupid. They will move quickly to shred TSLA in the low end market, assuming they recognize the threat. Not only that, but they take on comparatively little additional risk in doing so, outside of product development costs. They don't need to build assembly lines, factories etc, because they already exist. Even if one mfg misses the electric vehicle trend, it's highly unlikely 6 of them will.
That's all, and I'd really like a counterargument.
- LAMike 10y agoI heard Elon say that if they were to produce 1M cars per year, they would need to consume all Lithium-Ion batteries produced in the year 2014. Obviously there will be more batteries produced in 2020, but Tesla's fate would be at the mercy of the battery producers, which could collude to drive the price of batteries. For better or worse, Tesla is hell-bent on vertically integrating every single aspect of production. I believe they might be working on software that will allow them to stop relying on NVDA's chips for self driving as well. "First principles" business model will make or break Tesla/Elon.
- marvin 10y agoThe answer is pretty simple; global production of battery cells suitable for automotive use is far, far below what is required for Tesla's goal of turning (forcing) the majority of the world's produced cars electric. Buying this capacity from a third party cannot be done; there is no seller capable of providing the product. Global car production is on the order of 50 million vehicles per year, which means a required capacity of 2500GWh/year assuming 50GWh/car. 2013 li-ion battery production was 35GWh, some 1.5% of this number. Tesla wants to reach a production rate of 500k cars/year in the next couple of years, and you probably wouldn't find a 3rd party manufacturer willing to eat the risk of upping the world's battery capacity by 50% to fulfil this contract. Never mind Tesla's long-term production goals, which are in the millions of vehicles per year. Hence they're forced to do it themselves, same situation as the charger network on a bigger scale (which could in an ideal world be done by governments or a third party, but never on the short time scale required). I can't speak to the location of the factory.
- coredog64 10y ago> Geographically, it's not near any major lithium, cobalt, (economical to extract) rare earth, etc deposits, and it's not in a traditional manufacturing area. Maybe they're getting a sweet tax deal Land is cheap, labor is cheap, and it's on a major rail line. You don't need to extract the lithium or cobalt on site, you just need to be able to get it cheaply. If this [0] source plays out, then they actually do have lithium nearby. [0] http://fortune.com/2016/03/29/lithium-tesla-mine-nevada/ http://fortune.com/2016/03/29/lithium-tesla-mine-nevada/