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Tesla (TSLA) Officially Opens Partly-Constructed Gigafactory

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Tesla Motors, Inc. TSLA announced the official opening of the Gigafactory in Nevada. However, it is only 14% complete. After completion, the factory will be occupying 10 million square feet, which will make it one of the largest buildings in the world.

Tesla will need a huge supply of batteries for the mass vehicle, Model 3, which has a starting price of $35,000. The automaker expects that Model 3 will generate annual revenue of $20 billion and gross profit of $5 billion once it enters full scale production. Model 3 will be Tesla’s least expensive vehicle. By 2018, Tesla expects the cost of batteries to reduce by more than a third due to the Gigafactory. The company further hopes that the factory will help create job opportunities for about 10,000 people in the next three to four years.

In order to deal with the shortage of lithium-ion batteries, Tesla started building the Gigafactory to produce them in collaboration with various partners, including Panasonic Corporation PCRFY. The company has already started the production of Tesla Energy products at the plant. Tesla plans to produce the first cell at its Gigafactory in the fourth quarter of 2016. Panasonic has invested $1.6 billion in the factory. Further, it is installing machines in sealed, humidity-controlled rooms that will start making battery cells before the end of this year for the Gigafactory.

Tesla will receive tax incentives of $1.3 billion over a period of 20 years from the Nevada government for the construction of the Gigafactory. The company expects 31% of the factory to be completed by the second quarter of 2017. The roof of the factory will be covered by solar panels.

By 2020, Tesla expects the annual lithium-ion battery production of the Gigafactory to exceed the global production of 2013. Tesla considers that the factory will be producing 35 gigawatt hours of batteries by 2018, which is almost equal to the total world production in 2014. The company further said that the factory has a production capacity of 150 gigawatt hours. It will produce enough battery packs to allow Tesla to build around 500,000 electric cars by 2018. The automaker further expects the factory to provide economies of scale, reduce logistics wastes, help in optimization of co-located processes and lower overhead costs.

Panasonic also ships cells from Japan for the Powerwall business. Tesla considers that about one third of the Gigafactory’s batteries will be used for the Powerwall business initially. Later, this capacity will expand to about half of the production volume.

Tesla currently carries a Zacks Rank #3 (Hold).

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