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Tesla's (TSLA) Gigafactory Starts Battery Cell Production

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Tesla Motors, Inc. (TSLA - Free Report) has initiated lithium-ion battery cells production at its Gigafactory in Nevada in collaboration with Panasonic Corp. (PCRFY - Free Report) . The cylindrical 2170 cells will be used in the Tesla's Powerwall energy storage products. These cells have been jointly designed by Tesla and Panasonic.

Tesla intends to start producing batteries for the Model 3 sedans later this year. In July 2016, the company held the official opening of the partly-constructed Gigafactory as per plan. Tesla expects 31% of the factory construction to complete by the second quarter of 2017.

In order to deal with the shortage of lithium-ion batteries, Tesla is building a Gigafactory in collaboration with partners like Panasonic. The automaker will receive tax incentives of $1.3 billion over a period of 20 years from the Nevada government for the construction of the factory. Tesla expects to wrap up construction work by 2017.

By 2018, Tesla expects cost of its batteries to reduce by over one-third due to large-scale production at the Gigafactory. In the same year, Tesla expects the annual lithium-ion battery production of the Gigafactory to reach around 35 gigawatt hours, which is equal to the total global production in 2014.

Moreover, the company has the capacity to increase production to around 150 gigawatt hours. The automaker expects the factory to provide economies of scale, reduce logistics wastes, help in optimization of co-located processes and lower overhead costs.

Price Performance

Tesla has been lagging the Zacks categorized Auto Manufacturers-Domestic industry for over a year. In the past year, the share price of Tesla gained 3.6% while the industry witnessed a 10.6% gain. The company’s new Master Plan, rapid international expansion and continued investment in infrastructure development are major positives. The Gigafactory construction should also prove beneficial.

Zacks Rank & Key Picks

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

Better-ranked companies in the auto space include The Goodyear Tire & Rubber Co. (GT - Free Report) and GKN plc . Goodyear Tire and GKN carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Goodyear Tire has a long-term growth rate of 17.2% while GKN has a long-term growth of 6.2%.

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