WASHINGTON, May 20, 2014 — Tesla [TSLA] CEO Elon Musk announced last week that the company is planning to build 200 Gigafactories to produce batteries for its electric cars, but the market is less than enthusiastic.
Last February, Musk announced that the company “in cooperation with strategic battery manufacturing partners” was looking to reduce the cost of lithium ion batteries sooner than previously anticipated, by opening a Gigafactory. Tesla’s web site said the single factory would match current global battery production by 2020.
Musk plans to build at least the first factory in the United States, and says it will create approximately 6,500 jobs. Each factory will produce batteries for about 500,000 cars.
Tesla’s Model S recently won the best overall car by Consumer Reports, and the company plans to launch a Model X electric SUV in the next year.
Tesla is also expanding its market, moving into Europe and Asia and tapping into the electric car buyers in those area.
While Tesla is much beloved by supporters, the industry has its skeptics, including many market-watchers.
Tesla’s stock is currently trading at approximately $195, down 25 percent from euphoric highs earlier this year. Analysts note that while the company maintains strong core believers, the market as a whole has shifted away from the company. One European analyst who closely monitors Tesla and the reaction of the U.S. market notes, “Investors – not the star struck ones, but the objective ones – are starting to raise real questions about the company and about whether it can keep expanding at this pace and growing sales. There is growing sentiment that the sales may be tapping out.”
The massive battery expansion is likely to raise similar questions. If the company is unable to sell all those giga-batteries, the factories will be no more than a headline. At $5 billion a piece, they require a major capital expenditure that may not see corollary returns.
Many see Musk as a visionary, looking to supply a future market with the batteries it needs. There are, however, questions about whether that demand will appear or whether the new factories will lead to an over-supply situation. While this would help keep prices of vehicles low, it would also cut into profits for the company, something the market does not want to see.
Another question is whether Tesla is pivoting from its core electric vehicle history toward the lithium ion battery market. The factories will exclusively produce batteries, not cars. While the batteries are certainly key components of electric vehicles, most of the support for Tesla is for its cars. The market may punish anything that distracts from that pursuit.
A recent Wall Street Journal article raised another question about the factories, whether the current technology will even be relevant by 2020, when Tesla expects to hit full production.
For his part, Elon Musk is not worried. The outrageously ambitions inventor simply ignores the criticism and keeps moving forward. He is currently finalizing the site for the factory, and has narrowed it down to Arizona, Nevada or Texas.
Musk continues his efforts to revolutionize the electric vehicle market, and the battery factory is just another phase of that vision.Click here for reuse options!
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