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Panasonic and Tesla sign Gigafactory agreement

31 July 2014

Panasonic Corporation and Tesla Motors, Inc. signed an agreement that lays out their cooperation on the construction of a large-scale battery manufacturing plant in the United States (the specific location yet to be announced) known as the Gigafactory. (Earlier post.) During Tesla’s Q4 earnings call in February, Tesla CEO Elon Musk had noted that because Panasonic is Tesla’s primary partner on battery production, the “default assumption” was that Panasonic would continue to partner with Tesla in the Gigafactory.

According to the agreement, Tesla will prepare, provide and manage the land, buildings and utilities. Panasonic will manufacture and supply cylindrical lithium-ion cells and invest in the associated equipment, machinery, and other manufacturing tools based on their mutual approval. A network of supplier partners is planned to produce the required precursor materials. Tesla will take the cells and other components to assemble battery modules and packs.

To meet the projected demand for cells, Tesla will continue to purchase battery cells produced in Panasonic’s factories in Japan. Tesla and Panasonic will continue to discuss the details of implementation including sales, operations and investment.

Tesla is creating the Gigafactory to enable a continuous reduction in the cost of its long range battery packs in parallel with manufacturing at the volumes required to enable it to meet its goal of advancing mass market electric vehicles. The Gigafactory will be managed by Tesla with Panasonic joining as the principle partner responsible for lithium-ion battery cells and occupying approximately half of the planned manufacturing space; key suppliers combined with Tesla’s module and pack assembly will comprise the other half of this fully integrated industrial complex.

Tesla2
Diagram of projected Gigafactory process flow from earlier Tesla presentation. 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.

The Gigafactory represents a fundamental change in the way large scale battery production can be realized. Not only does the Gigafactory enable capacity needed for the Model 3 but it sets the path for a dramatic reduction in the cost of energy storage across a broad range of applications.

—JB Straubel, CTO and Co-founder of Tesla Motors

Tesla anticipates cost reductions will be achieved through optimized manufacturing processes driven by economies of scale previously unobtainable in battery cell and pack production. Further price reductions will be achieved by manufacturing cells that have been optimized for electric vehicle design, both in size and function; by co-locating suppliers on-site to eliminate packaging transportation & duty costs and inventory carrying costs; and by manufacturing at a location with lower utility and operating expenses.

The Gigafactory will produce cells, modules and packs for Tesla’s electric vehicles and for the stationary storage market. The Gigafactory is planned to produce 35 GWh of cells and 50 GWh of packs per year by 2020. Tesla projects that the Gigafactory will employ about 6,500 people by 2020.

July 31, 2014 in Batteries, Electric (Battery) | Permalink | Comments (15) | TrackBack (0)

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Charge!

This is as important as it gets. This planet desperately needs lower cost high energy density batteries and this factory is going to be the lowest cost factory by far for such batteries. The scale and degree of vertical integration is truly amazing and unprecedented. This single factory will double the combined global production capacity for all kinds of lithium batteries. Yet this factory will only do one type of lithium batteries namely the 18650 Panasonic (3.4Ah or 4.0 Ah) cell. Or nearly 4 billion of them every year by 2020. I still do not think that 35000 USD will be possible for a luxury car with a 60 kWh battery (Model III) but 40,000 USA should be doable without subsidies in 2020 solely because of the low cost cells from this factory.

This is good news, but it better be flexible manufacturing, by the time it comes on line a major battery advance could be in the wings.

SJC

Panasonic and Tesla does not have to worry their factory will be obsolete by the time it is in full production as it will take just as much time for others to test, validate, develop production technology and scale up production. This process does not take months or a few years it take decades to get from a research breakthrough to a 50Gwh factory. This leaves enough time for Tesla to retool in case something fantastic is developed. My best bet is that 20 years down the road it will still be Panasonic and Tesla that has the best and lowest cost batteries.

A number of the new electrode materials are touted as drop-in replacements for current materials, so the schedule and budget for such improvements may be much less than many believe.

I would build several factories instead of one big one. New battery technology is advancing every day, they could take down one for retooling while leaving the others up and running. This lesson should have been learned by the latest shut down for a new line.

SJC

Problem is this. One 50Gwh factory cost 5 billion USD needs 6500 employees to operate whereas 10 5Gwh factories would cost say 10 billion USD to build and would need a combined 10,000 employees to operate. Consequently the 50Gwh factory can make cells at 200 USD per kWh and the 10, 5GWh factories can do cells at 250 USD per kWh. The numbers are proxies of cause.

Moreover, Tesla and Panasonic probably plan to retool their factory every 5 year anyway to accommodate better battery technology. They do not stop production to retool for upgrading just one technology like the part of the plant that make anode powder. They wait until they can replace the machinery for making both anode, cathode and separator films. That process may take 40 days and cost 1 billion USD in new machinery. The factory make 10 billion worth of batteries (50GWh * 200 USD per kwh) per year so shutting down in 40 days will cost another 1 billion USD in lost revenue.

Note also another thing about the 50GWh factory. It produces nearly everything to make a 18650 cell apart from a few raw materials. This factory will buy raw aluminum bars, cobber bars, lithium carbonate, steel bars and inexpensive bulk chemicals for the separator films and a few other things. The electricity used will be produced by an associated wind farm and solar park. This is an extreme an unprecedented degree of vertical production integration and the reason that this factory will probably house at least 15 other companies besides Tesla and Panasonic as different companies are responsible for different aspects of the production and have proprietary rights to the applied technology. The raw materials this factory uses probably cost less than 500 million per year because they are so basic. Out comes 10 billion USD worth of batteries.

I would build five plants, one in each of the proposed locations. Tesla lost more than 3 weeks of total production putting in a new line at their factory, because it is all under one roof and they share resources on all lines.

Shared resource efficiency is good unless that shared resource is disrupted. Five separate plants are parallel with no dependent linkages. One of the plants goes down, the other four operate at full capacity.

SJC

Smaller factories will also have to be stopped for 40 days or so every 5 year for retooling and upgrades. No savings on that account by going small. But I guess your argument is more about the need for redundancy. That would be nice but also too costly. Fortunately, Tesla does not intend to stop at 50Gwh in 2020. If they can sell the cars they will break ground on another nearly identical 50GWh factory at around 2018 with production startup in 2020 and full production by 2023. More 50Gwh factories will follow. You see in order to make the 100 million BEVs per year that this world need we also need about 200 of these 50Gwh factories. So you will eventually get your redundancy.

I doubt they will produce 100 million electric cars per year and neither will the world any time in the foreseeable future, not with this battery chemistry. Economies of scale only go so far, everything has limits and diminishing returns.

They can not wait 20 years for redundancy, the Mean Time to Repair and Mean Time to Failure will catch them early on. All it takes is one of their processes to go down. If they lose the cathode line that supplies all the rest, it will grind to a halt. Multiply that times many key processes then you have less than a robust factory plan.

We seem to agree about a lot as I did not say Tesla would be producing 100 million cars per year, I did also not say that 100 million BEVs will be produced in the foreseeable future and I did also not say that the 100 million cars per year will be made with today's battery chemistry.

Tesla estimates they 50Gwh factory (50Gwh battery packs and 35Ghw cells to be exact) can reduce the cost at the pack level by more than 30%. If they could build 10 identical factories the cost would go further down of cause. But currently they can't. As I said every 5 year or so they will retool the factory for new and improved battery technology just as it happens everywhere else in the world today.

Large battery factories have numerous of parallel and identical production lines. They each break down frequently but not all at the same time. The only time where all production is stopped is for complete retooling every 5 years as I said. The important risk that I see Tesla and Panasonic are running here is the case of mayor fire, flooding or earthquake or even a terrorist attack. I am sure they are working hard to eliminate or reduce the probability of such incidents because they could bankrupt Tesla when they only have one factory.

I just realised something about this facility. Since Tesla is also including large renewable energy production in this facility (presumably mostly with PV) and they're making cheap, long life battery systems, they could devote some fraction of their output to creating the storage capacity they need to employ nothing but renewable energy in this facility. This makes the whole design really scalable. Just add raw materials and labour, out comes battery packs.
50 GWh at $200 per KWh = 200*50x10^6 = $10 billion per year.
(Thanks Henrik)

6000 employees at $100,000 per year = $0.6 billion dollars.

Interest at 5% on 5 billion dollar capital cost = 0.250 Billion per year.

As Henrik says the other raw materials are also rather cheap.

I'd say Tesla is likely to completely redefine the economics of large scale storage of energy. Also the gigafactory concept is scalable to many other locations with abundant sunlight and high quality labour.

@msevoir

You are quite right. I think this factory is going to make three types of battery packs.

500,000, 60kWh packs for the Model III equals 30Gwh.
120,000, 90kWh packs for the Model S/X equals 10.8GWh.
and probably 920,000, 10 kWh packs for backup power and load leverage for home owners and businesses with solar cell installations. That is the remaining 9.2 Gwh. (a 10kW unit is about 50 kg and very compact. Two men can install it anywhere. A 10 kWh lead acid system would cost the same to make but it will be much more costly to install as it will weight 250 kg and be quite large. It would also wear out pretty fast after 2 years whereas the Tesla pack probably will last 4 years).

I would estimate Tesla's total cost at the factory roughly as:
6500 employees at 100,000 = 650 million per year.
5 billion at 10% (high risk factory loans not treasury bonds) = 500 million per year.
Capital depreciation 1 billion per year
Cost for upgrades repairs and production interruptions 500 million per year
Raw materials 500 million per year (highly uncertain I really do not know but expect it is very low because of the extreme degree of vertical integration). It could also be a billion or two per year.
Insurance allowances 1 billion per year. (battery recalls defect production etc).
The factory will buy 15GWh of finished cells from Panasonic for 200 USD per kWh (higher costs for Panasonic's smaller factories) Total cost 3 billion USD.

Total annual factory costs (650+500+1000+500+1000+3000)= 6.65 billion USD per year.
Total earnings per year 50GWh at 200 USD per kwh = 10 billion.
Total taxable profits per year 3.35 billion USD.

Note that if raw materials is higher than the assumed 500 million it will reduce the taxable profits.

If Telsa is going to try to self-power their factory, and is producing the batteries capable of buffering the unreliable RE flows overnight, one of the things they'll be doing is wearing out their own cells.

This is an opportunity.  Tesla can also build a battery disassembly and cell-recycling plant.  The goal would be to produce reclaimed materials streams suitable for return to the battery production plants (after handling off-site, in the case of materials not produced at the plant itself).  It would be good to have an example of a fully closed loop.

@EP

Tesla has announced that battery recycling will be an integral part of this factory. It is also shown in the production flow diagram above. Elsewhere I read Musk has said their RandD expenses were high also because they were developing yet unannounced things. I believe they are developing a scalable backup-power, load leverage system that can be installed both in small homeowner environments as well as large industrial facilities. I believe it will be cloud controlled and that they will market it as a leased service that they maintain and service but that it is installed locally near the power producing / consuming sources. There is a huge future market for such systems in relation to solar and wind power that is going to get less costly in the future but also contribute more to total power production and therefore the increased need for these backup power / power leverage systems. At some point it would have to become a legal requirement that such backup is provided in connection with every new solar power and wind power installation simply to secure the stability of the grid. Tesla will have the lowest cost batteries in the world for that task so they will take this market as well until others start making 50Gwh factories as well.

Tesla already has a Tesla produced backup system for their California assembly factory. I believe it is about 2000 kwh and it only provides partial bacup load leverage. The back-up power system for the 50Gwh factory will have to be much larger but it too will be partial. You still need a powerful grid connection but a significantly smaller one than would be needed without this load leverage system. And that is the point.

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