Tesla Motors, Inc.
) announced that it is planning to construct a large-scale
factory - 'Gigafactory' - to produce lithium ion batteries in
collaboration with various partners. The electric carmaker's
Japanese battery pack supplier
) is one of the partners, according to media reports.
The automaker expects the factory to provide economies of
scale and reduce production costs based on innovative
manufacturing techniques, reduced logistic wastes, optimization
of co-located processes and lower overhead costs.
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Tesla is considering Nevada, Arizona, New Mexico and Texas for
the construction of the battery factory, which will be employing
around 6,500 people. The automaker will be initiating the
construction work this year and expects to finish the factory by
2017. The factory will supply lithium-ion batteries to Tesla's
Fremont, CA, assembly plant.
By 2020, Tesla expects the annual lithium ion battery production
of the Gigafactory to exceed the global production in 2013. The
factory will produce enough battery packs to allow Tesla to build
around 500,000 electric cars by 2020. Also, by the end of the
first year of manufacture of the planned mass market vehicle, the
per kWh cost of production of battery packs is expected to be
reduced by over 30%.
Tesla intends to finance the construction of Gigafactory from the
proceeds of a senior notes issue. The company has announced an
underwritten registered public offer of $1.6 billion aggregate
principal amount of convertible senior notes. Of this, notes
worth $800 million will be due in 2019 and the remaining $800
million notes will mature in 2021.
Tesla will be offering the underwriters a 30-day option to
purchase up to an additional $120 million of convertible senior
notes due 2019 and $120 million of convertible senior notes due
2021. This will increase the potential offering size to $1.84
Other than financing the Gigafactory, the proceeds from the
offering will be used for development of the Gen III mass market
car, domestic and international business development and other
general corporate purposes.
Tesla said it will be investing about $2 billion in the factory.
However, the construction will require $4-5 billion. The rest of
the funds will be provided by Tesla's partners.
Tesla currently carries a Zacks Rank #2 (Buy). Some other
automobile stocks worth considering are
Tata Motors Ltd.
Dongfeng Motor Group Company Ltd.
). Tata sports a Zacks Rank #1 (Strong Buy), while Dongfeng carry
a Zacks Rank #2 (Buy).