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Tesla outlines scheme for $4-5B battery Gigafactory; announces $1.6B offering

27 February 2014

Tesla1
The planned cell output of the Gigafactory in 2020 exceeds 2013 global production by current manufacturers, Tesla said. Click to enlarge.

Via a post on its website, Tesla Motors outlined its plan for its future battery “Gigafactory”, projected to require between $4-5 billion in investment from Tesla and its partners by 2020, with a resulting cell capacity of up to 35 GWh/year and pack capacity of up to 50 GWh/y to service a projected 500,000 Tesla electric vehicles per year.

Tesla plans to invest directly approximately $2 billion, the rest to come from its partners in the venture. During the company’s Q4 earnings call last week, Tesla CEO Elon Musk noted that because Panasonic is Tesla’s primary partner on battery production, the “default assumption” is that Panasonic would continue to partner with Tesla in the Gigafactory. Reports have surfaced that Panasonic is considering a $1-billion investment, but nothing has been announced or confirmed at this stage.

Musk also noted last week that “The Gigafactory would absorb all of the cells produced, and would still need to bring in more cells from around the world.”

In October 2013, Panasonic and Tesla had already expanded their 2011 supply agreement so that Panasonic will supply nearly 2 billion automotive-grade lithium-ion battery cells to Tesla through 31 December 2017 at long-term preferential prices. (Earlier post.)

In its comments, Tesla noted that its goal of producing a mass market electric car in approximately three years provides an opportunity to leverage its projected demand for lithium-ion batteries to reduce their cost faster than previously thought possible.

By the end of the first year of volume production of its mass market vehicle, Tesla expects the Gigafactory to have driven down the per kWh cost of the Tesla battery pack by more than 30%.

Tesla2
The Gigafactory is intended to encompass the entire battery manufacturing chain, taking in raw materials to produce primary components (cathodes, anodes, separators, electrolytes, can and cap) then producing cells, modules and packs for shipment to Fremont Assembly. The plant will also handle recycling end-of-life packs.

Tesla envisions a plant space requirement of up to 10 million ft2 (929,000 m2) with 1-2 levels. Total land area required will be 500-1,000 acres, and total employees are estimated to be about 6,500. Click to enlarge.

Finalists for the Gigafactory location are Nevada, Arizona, New Mexico and Texas. Tesla envisions beginning construction on the Gigafactory this year.

Tesla3
Click to enlarge.

$1.6-billion offering. Separately, Tesla announced an offering of $1.6 billion aggregate principal amount of convertible senior notes in an underwritten registered public offering. Tesla intends to use the net proceeds from the offering to accelerate the growth of its business in the US and internationally; for the development and production of its “Gen III” mass market vehicle; the development of the Tesla Gigafactory; and other general corporate purposes.

Of the total offering, Tesla will offer $800 million aggregate principal amount of convertible senior notes due 2019 and $800 million aggregate principal amount of convertible senior notes due 2021.

In addition, Tesla intends to grant the underwriters a 30-day option to purchase up to an additional $120 million in aggregate principal amount of convertible senior notes due 2019 and an additional $120 million in aggregate principal amount of convertible senior notes due 2021, for a total potential offering size of up to $1.84 billion.

The convertible senior notes due 2019 will be convertible into cash, shares of Tesla’s common stock, or a combination thereof, at Tesla’s election. The convertible senior notes due 2021 will be convertible into cash and, if applicable, shares of Tesla’s common stock (subject to Tesla’s right to deliver cash in lieu of such shares of common stock). The interest rate, conversion rate and other terms of the notes are to be determined.

In connection with the offering of the notes, Tesla intends to enter into convertible note hedge transactions and warrant transactions, which are generally expected to prevent dilution up to approximately 100% over the common stock price at the time of pricing of the notes due 2019 and 120% over the common stock price at the time of pricing of the notes due 2021.

Tesla intends to use a portion of the proceeds from the offering to pay the net cost of the convertible note hedge transactions. In connection with establishing their initial hedge of the convertible note hedge and warrant transactions, the hedge counterparties or their affiliates expect to enter into various derivative transactions with respect to the common stock concurrently with or shortly after the pricing of the notes, including with certain investors in the notes.

Goldman, Sachs & Co., Morgan Stanley, J.P. Morgan and Deutsche Bank Securities are acting as joint book-running managers for the offering.

February 27, 2014 in Batteries | Permalink | Comments (54) | TrackBack (0)

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The 50 Gwh/yr pack assembly capacity is actually enough for 588,000 Model S with a 85kwh pack.

When this factory is build the undisputed leader in the electric automotive industry will be Tesla by a very large margin. In fact this year Tesla already is looking to become the largest consumer of automotive batteries in the world doing 35k Model S with approximately 85kwh pack per car or a total of 2,975,000 kwh. The consumption of the entire Nissan/Renault alliance is less than 100k BEVs times 24kwh or just 2,400,000 kwh. This is important because the volume leader will also be the one that can drop the price the most and therefore also become the most profitable BEV maker.

I will repeat that the strategy of making short-range BEVs with long charge times (<50kW) and low engine power (<120kW) is a dead end strategy because it makes a worse car experience than a similar powered gasser that also cost less. On the other hand, Tesla's strategy of making long-range BEVs (over 200 miles real world) with short charge times (135kW) and high powered engines (>225kw) is winning because it makes a better car than a similar powered gasser and cost roughly the same. The cost parity is possible because a high power engine and transmission cost much more in a gasser than in a BEV and that is nearly making up for the higher battery cost of the BEV. There is no such cost advantage with a low powered car as the extremely high global volumes of the 100kW engines has bought down the cost of these otherwise complex gasser engines and transmissions.

Only Tesla's strategy will be able to move a significant number of BEVs and therefore also bring down the cost of the batteries for Tesla's type of BEVs. Volume production is driving battery cost more than anything else. Without that we will never get to an affordable mass market BEV. And you start with the low hanging fruit as Tesla does which is the market for performance cars.

Anyone care to speculate what Tesla might be paying currently for their batteries (at the cell level)?

I'll kick off with $200 per kWh.

@Clett I do. I would infer Tesla's battery cell costs with info from Tesla's battery pack prices. Tesla's 60kWh pack cost $37,102 and the 85kWh pack cost $44,564. In other words you get 25 kWh more battery for just 7462 USD ($44,564-$37,102) or just 300 USD per kWh (7462/25). This is the cost of the cells used in the battery pack. In other words, the 85kWh pack contains 25500 USD (300*85) worth of battery cells whereas the remaining 19000 USD (44500- 25500) is used 1) to produce the battery pack 2) to account for profit, 3) to account of insurance allowances (cost of inevitable battery recalls) and 4) to finance the cost of providing Tesla owners free electricity for life when using the Tesla supercharger network. Note that the 60kWh battery also cost 19,000 USD plus cost of cells that are 300*60 = 18,000 USD or 37000 USD in total.

With this new factory Tesla might reduce the cost at the cell level by 30% so 300*0.7 = 210 USD per kwh. I think Tesla can reduce packaging costs by more than 30%. I speculate that Tesla need 50 USD per kwh for packaging in the new factory and 100 USD extra per kwh for profits, insurance allowances and prepaid free long-range driving for life. The Model E will need 60kwh to do 200 miles minimum real world and the battery pack everything included will therefore cost about 360*60 = 21,600 USD. Selling the Model E for 45000 USD should therefore be very doable. Model E will come with the same 225kW engine as the basic Model S or Model X probably in a redesigned cheaper to manufacture form that will be used also in the coming versions of Model X and Model S.

A large Tesla/Panasonic colocated 3-3-3 EV battery factory makes sense to reduce development & transport time and cost. Production could match requirement with a 'just in time' schedule to keep stocks low.

It probably be in production in time for the Model E?

Another good move for California.

When will the LA-SF ultra high speed tube be announced?

It is amazing to consider:

Years and oceans of ink devoted to America's battery dreams - A123, Envia, 24M, Aquion, ..

Then, Tesla, the-Romney-loser plans to build more batteries than than the rest of the planet - ALL on US soil - and all is well.

'What a long strange trip its been' continues..

"I will repeat that the strategy of making short-range BEVs with long charge times (<50kW) and low engine power (<120kW) is a dead end strategy because it makes a worse car experience than a similar powered gasser that also cost less."

Henrik, with a more urban populous, fewer driven miles, ICE pollution/control cost increases, and EV power components cost decreases - short range BEVs are viable.

With scale and cost drops, as in solar PV, LCD TVs.., under $10,000 BEVs will be possible and all that many can afford.

Even now, the EV bashers speak of 15%/5yr EV prices.

WOW, a used Leaf for under $5,000. Put the 80%+ remaining battery in a home solar system, get a (3rd party?)replacement for a fraction of today's prices, and replace the shocks for another cheap/gas-less 5/10 years of travel.

That is a really big step for EV cars. Still I don't see why the batteries would be cheaper coming from this factory than from Panasonic current factory, past a certain volume of manufacturing the price doesn't shrink much by increasing the volume. Also they need to increase the Lithium supply to feed a 2x demand in battery production. Also I don't see this working without panasonic transferring its battery technology and a long term agreement to upgrade the technology when new batteries comes in the market. Panasonic regularly upgrade its batteries because they have research and development labs. A manufacturing plan is not enough to stay a player in the battery game. You need to be able to keep pace with the progress of the technology

But anyway that's a good news, and in Nevada this factory could be mainly powered by solar energy.

Improved battery components come out almost every week or so. Could future Tesla/Panasonic become master integrators and update their mass produced batteries (every 18 months or so) mostly with new technologies developed and tested by somebody else?

By using the best technologies available, Tesla/Panasonic could reduce the time required between battery generations and arrive to the 5-5-5 unit sooner.

The long strange american trip in batteries has been one of venture capital thrown out to show failure rather than a real intent to build a new industry based on knowledge of the future trends. We protect the old and destroy the new because the bosses of our leaders own the old, and that still makes lots of money. Those that make the money, make the laws and make the decisions. They have decided that EVs and batteries are a failure and our political bosses agree. Elon didn't get the message.

The ARRA funded battery plants were to have built 500,000 packs a year (much smaller packs though) and it is routinely touted in the press that the demand for these batteries is just not there. So how does this jive with Tesla building a plant that is about 8 times larger than the entire ARRA battery manufacturing initiative?

You can imagine that if a technology threatened Exxon, they would get on the phone to investment bankers telling them not to fund the disruptive company. The investment banks want future oil company bond business.

Gee, I sure hope that Tesla will sell most of these batteries made in the new factories to OEM's to build PHEV's. One can build 8.5 PHEV-30's of 10kWh each for each Tesla 85kWh pack.

The main advantage behind Tesla's sale success is that its battery pack is made to disappear underneath the cabin, when the battery pack also serves as the car's main structural component. A very appealing vehicle is then made possible with ample of internal space and luggage room.

A PHEV made using Tesla's battery technnology and layout can also enjoy the same sale success as the Tesla's BEV.
Existing PHEV's are already cost-effective when factored in the energy cost sanvings, however, adoption of existing PHEV's have been very slow...due perhaps to the intrusion of the battery pack into the trunk space, rendering the whole vehicle unappealing.

Whether or not Tesla will choose to make future PHEV will be a big unknown. However, if Tesla will be so kind as to sell its future battery packs to other OEM's in order to make very appealing future PHEV's, the world will be a Better Place! So, instead of being able to produce 588,000 future 85-kWh Tesla BEV's yearly as Henrik predicted, the world will be able to enjoy about 5 Millions PHEV-30's YEARLY, with large trunk space, light weight and superb performance due to the low center of gravity and the lightness of the battery pack that is also serving as main structural member of the car!

Of course, Tesla will make profit with the sale of its future battery packs that will make its investor happy, and also that they are doing something real good for the world!

Now, after 10 years, the battery pack in the BEV will have to be replace due to ageing, so, the vast potential of the 85-kWh battery pack will be wasted when it can be charged 5,000 times and capable of propelling the vehicle million of miles (5,000 x 200mi/charge = 1 million mile) instead of 120,000 miles in those 10 years.

However, in a PHEV-30, if charged twice daily or 500x/yr, will result in 80-90% petroleum savings and won't exhaust the 5,000 cycles in less than 10 years, and let's imagine the amount of petroleum saved what 8x more PEV's could be built for the same amount of battery capacity in a single BEV!

@BK4 You wonder how Tesla appears to succeed in making a monster automotive battery factory while all other projects for lithium automotive battery factories seem to fail (the biggest failure is the Nissan/Renault battery factories with a capacity to do 500,000 units of 24kwh packs per year and they only utilize 100k units of this capacity in 2013). The simple answer is that Tesla has a market for their batteries whereas all others do not and therefore they fail. Tesla can sell BEVs to people who does not care much about the environment or the technical marvels of the power train in their car. Predominantly what these ordinary people care about is to get the most enjoyable and usable car for the money they can spend. This is a much bigger market that selling inferior BEVs to people that with all respect are either environmental fundamentalists or technical geeks. I consider myself being both so I do not say it to stir disrespect but I know I am a tiny minority among consumers. You got to make BEVs that are better than the gassers for the same money and only Tesla can do that currently.

@Roger the batteries that Tesla use are not suited for PHEV use as they are not capable of being cycled more than about 600 times to 80% degradation. Tesla batteries are mostly about high volumetric energy density. The world does not function the way you think that if Tesla builds a factory there will not be batteries for the PHEVs. Batteries for PHEVs will be build to the degree that there is a market for it and it is unrelated to Tesla's venture. And yes there is plenty of lithium on this planet so don't worry about that either. I can assure you that Tesla will not make PHEVs ever. They are not the future of the automotive industry but pure BEVs are and Tesla will focus all their resources on making that future happen.

@Henrik,
The following link shows that the NCA 18650, as used in Model S, degrades only 10% of total capacity after 3,000 charging cycles. This is 10 folds improvement over the NCR chemistry of previous generation.

http://www.teslamotorsclub.com/showthread.php/12709-18650-Batteries/page2

What I'm saying was that the superior battery chemistry and packaging by Tesla has also a lucrative market for PHEV as well as other non-automotive usage. Any excess future battery not used for BEV can be sold to other OEM's for making PHEV batteries, at significant profit. So, the business prospect of the proposed Tesla battery factory will be very good.

Lithium battery is also very important in backing up solar and wind electricity, so it's important that the amount of battery will be spread out as much as possible to achieve the most CO2 emission reduction per kWh of capacity. To that extent, PHEV usage will greatly help in this regard.

I agree with henrik, Tesla will not be going the complexity route with gasoline engines. Musk has this mantra to reduce mechanical complexity of things which have significant reliability issues and replace them with highly complex electronic systems which do not.
This explains the high growth of this company which has not been thwarted by major service issues.

Sure there are 8000 cells in each pack but they are identical and their mounting does not require accurate dimensions to be maintained between each one in order to function correctly.

Musk has identified the central electricity generation model to be a weak game. Their model should have included battery farms located in the immediate vicinity of their customers. These load centres would not only permit the use of lower capacity feeder lines from remote generators through load levelling but also insurance against power interruptions posed by natural causes e.g the recent ice storms.

Although it is true that large batteries provide large power capability, so why not every car 185Kw ? The answer to that is that there should be performance differentiators as you go down market. Limiting top speed to 75mph, for instance will allow a higher reducer ratio from 8 to 12 say, and this will allow a smaller frame size motor without effecting acceleration ramps too much, even so I see 8 second ramps to be quite achievable at the lower price points.

I would be disappointed if the horsepower race continues with electric vehicles before the range issues are improved. Quite frankly aerodynamics dictate that continuous operation above 70mph for an electric vehicle is somewhat counterproductive.

@Roger I was refereeing to deep cycling 0 to 100% SOC. The 3000 cycles in your link is for shallow cycling 60 to 90% SOC. I was still wrong by saying 600 cycles the correct number is 300 cycles to about 80% of original capacity at 0 to 100% SOC as is also evident from your link that also link directly to Panasonics own material confirming this. And no, the Tesla battery is no good for either short range BEVs say 24kwh packs and certainly not for PHEVs that need even more durable and also more costly cells.

A good rule of thumb I use to figure out the practical cycling efficiency of battery packs is to look at the warranted miles and battery pack size. For instance the Tesla Model S with a 60 kwh pack has a 120,000 miles warranty. Each kwh is good for 3 miles so the cycle life to about 80% of original capacity is 667 cycles = 120000/(3*60). The Leaf is warranted to 100,000 miles and has a 24 kwh pack. Its cells are therefore good for 1388 cycles =100,000/(24*3). Finally let us do the volt it has a 100,000 miles warranty and a 16.5 kwh pack so you get a cycle life of 2020 =100,000/(3*6.5).

Now that we are at it Panasonic has also developed a 4Ah 18650 cell that is quite a lot better than the 3.1Ah 18650 cell that Tesla currently uses, see link below. I expect it will be some version of that cell that the Ghwatt factory will make. Most has said that sometime next year new larger battery packs will be available for model S and X and I guess they will be based on Panasonics 3.4Ah 18650 cell.

http://www.greencarcongress.com/2009/12/panasonic-20091225.html

I also disagree that smaller packs are better for stabilizing the grid than larger battery packs. Vehicles with very large battery packs can be useful in an intelligent grid because they have some battery capacity to play with given the price for electricity is right. A PHEV owner only has a small battery that needs to be full all the time because its kwh are used up on nearly all trips. So no selling back to the grid to stabilize it in times of very high demand from the PHEV owner.

The investment banks want future oil company bond business.

That game is over.  The oil companies are pulling back their "upstream" investments because they are not profitable at current prices.  Fewer investments means less financing, and we are already well into the regime of demand destruction in the G7.

Natural gas and electric are the future.  Musk is on the right side of that.

A PHEV owner only has a small battery that needs to be full all the time because its kwh are used up on nearly all trips.

Unless the PHEV owner needs a charge right now (e.g. brief stops between legs of a trip), even the PHEV can be used in grid regulation by modulating the charging process.  If your 10 kWh PHEV needs a full charge sometime in the space of an 8-hour day plus lunch, a 3.3 kW level 2 charger barely needs 40% duty cycle to do it.  There's room for DSM in there.

@Henrik,
The following reference shows distinctly that the NCA 18650 battery chemistry was tested by independent university from 4.2 to 3.0 V (>90% DOD) and shows only 18% capacity reduction after 5020 cycles. The test is done at 5C discharge rate, meaning that in a 10-kWh PHEV, at least 50 kW of continuous power will be available. At lower discharge rate of perhaps 1-1.5 C for most of the time and at lower DOD of 70-80% for PHEV, the cycle life may be even higher. Of course, burst power will be higher, perhaps 75 to 100 kW of burst power will be available for quick acceleration. Perhaps the best-kept secret is that Tesla's battery is much, much better than common laptop batteries, and having much longer calendar life and cycle life.

This is a lengthy technical document, but you can look at the conclusion section at the end to get the gist of it.

http://mtrl1.me.psu.edu/Document/ZhangY_JES_2009.pdf

Roger you can believe in whatever you want to but I will stick with Panasonic's official documentation that clearly says 300 deep cycles to about 80% of original capacity at 25 Celsius. That documentation also fits with Tesla's warranty on the battery.

http://www.panasonic.com/industrial/includes/pdf/ACA4000CE254-NCR18650A.pdf

Indeed, it would be a truly revolutionary thing to have a battery cell that only cost 300 USD per kwh that could do 5000 deep cycles to 80% of its original capacity. That would mean at least 10000 deep cycles before the battery is entirely warn out. And if you do not deep cycle it but shallow cycle it instead, it could probable do twice as good as its deep cycle life so 20000 deep cycle equivalent before the battery is completely dead. In other words, 1.5 cents per kwh to store electricity that is 300 USD divided by 20000. But there is no such revolution because we are not there yet. Far from.

My advice to you is that you always pick the best sources and always judge everything you read/see with common sense and skepticism and never be afraid of losing an argument.

The link below shows that Tesla already in 2013 became the industry leader by kwh volume eclipsing the Renaul/Nissan alliance. Also note that the Outlander plugin is doing very well. Apart from Model S it is the only pluggable car that is in more demand than its production capacity.

http://www.greencarreports.com/image/100457894_estimated-2013-lithium-ion-battery-consumption-for-plug-in-electric-cars

>>>>>"...and never be afraid of losing an argument."

My objective is not about winning nor losing an argument, but rather to learn new knowledge, share and dissemination of correct, peer-reviewed knowledge.

At any rate, I'm very happy about Tesla's plan for a battery factory and for which will be hope for combating GW, after all. Let's be reminded that Tesla is also affiliated w/ SolarCity, who is also very successful at expanding solar PV installation. There will be tremendous synergism with PEV's and solar and wind energy utilization. This coming huge battery factory with tremendous cycle life and affordable cost will revolutionize the adaptation of RE, now that solar and wind energy can be quickly and cost-effectively backed-up, and PEV's rapid expansion. In fact, it is already on SolarCity's plan to use Tesla battery technology as energy storage and backup medium in home solar PV installation.

A Tesla Model S-85 with 4000 mAh batteries would become a Tesla Model S-110 with 500+ Km range.

That could happen by 2017 or so?

Teslas with the following battery generation could become the Tesla Model S-150 with 700+ Km range.

That would be close to the maximum battery pack capacity and range required by 2020/2021 or so.

Harvey, y tu, tambien?... Forgot that for each Model S-110, there is enough battery for 11 PHEV's of 30 mile range each (PHEV-30), and for each Model S-150, 15 PHEV-30's can be made? And those batteries are also very valuable as backup storage for Home solar PV installations. Put too much battery in one vehicle, and the rest of the effort in CO2-emission lowering will suffer!

During major wars, there were rationing of strategic materials. We are at war right now with GW and Climate Change, and Lithium batteries are strategic material. As such, it should be rationed: No more than 10-15 kWh of battery per vehicle, PLEASE!

Additionally, H2 infrastructure and FC should be deployed as fast as possible, as well solar PV's and wind turbines, and even nuclear plants.

Roger there are 13 million tons of lithium to be mined from brine mines. Each 85kwh pack from Tesla uses about 40 kilo of lithium carbonate. So you could do 325 million of these battery packs. However, you can also extract lithium from seawater although more expensively currently. There are 230 billion ton of lithium to be extracted there enough for 5750 billion 85kwh packs. We just need 1 billion of these packs to make every vehicle on the planet a long range BEV. Tesla will recycle materials from worn-out batteries into new battery packs. At some point in time this planet can do just fine with lithium from old battery packs so there will be no or little need for mining/extracting new lithium.

Fuel cell cars and gassers will eventually be considered impractical by comparison because they cannot be charged at home and because of their limited trunk space. Note that the Model S has more trunk space than a similar sized gasser. It has a trunk both at the front and in the back. The 10s of billions of USD that have gone into the development of fuel cell vehicles is unfortunately a nearly complete waste as that car will never succeed in the competition with BEVs.


http://www.bloomberg.com/news/2012-06-19/ipad-boom-strains-lithium-supplies-after-prices-triple.html

http://en.wikipedia.org/wiki/Lithium#Production

Well said Henrik. Who says that future batteries will use as much lithium as todays? May be a lot less! Certainly a lot less per kWh.

ICE cars went from 15 hp to 650+ hp (43X) over their relatively 130 years short history.

Electrified vehicles battery packs may go from 15 kWh to 200+ kWh (13X) in under 25 years. Those 200+ kWh battery packs will not necessarily have more volume nor be heavier than current Model S-60.

The question may be more between future improved FCEVs and extended range BEVs. It will be very interesting which technology wins.

Since we have a huge Hydro electricity surplus, I would go for the simpler BEV approach for cars and light trucks and FC for heavy vehicles such as cargo trucks, buses, locomotives etc.

@Harvey if there is no demand for larger battery packs Tesla will not make them just as they scrapped the 40kwh pack because it was not in demand (less than 5%). Today about 20% of the packs Tesla deliver are 60kwh packs and 80% are 85kwh packs. The 3.4Ah cell could make a 94kWh pack and I think that will be made available sometime next year. It will also cost more so it may not be in very high demand. If it is less than 10% of total sales Tesla will not make it but instead use the 3.4Ah cells to make less costly and less heavy 60kwh and 85kwh packs.

Future larger Tesla models such as a minibus, a truck or a more conventional looking SUV will be less aerodynamic and heavier. They will probably need a 105kwh pack to get a 265 miles range EPA rating just as the 85kwh Model S. They will probably be using the 4Ah cell and a larger and stronger frame than the Model S/X. However, I now believe that Musk prioritizes getting the Model E with a smaller frame than the Model S/X done before making larger and more expensive vehicles. Musk must focus on making a car that will keep Tesla as the volume leader in terms of kwh because that will enable him to have lower costs than other car makers and therefore be more profitable. And the lower priced Model E is the best way to maintain Tesla's volume leadership.

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