Behind the Scenes at Tesla’s Gigafactory: Field Notes From Our Recent Visit
In late August, Tesla invited us to visit the Gigafactory located outside Reno, Nevada. We happily took them up on the offer. The visit included behind-the- scenes tours of each production wing—and concluded with test drives of the Performance Model 3 and Model S P100D, the fastest production car in the world. (More on that below.)
Security was quite strict (no photos or videos were allowed) but I wanted to write up a quick post to detail the experience—and highlight some of key takeaways. If you have specific questions that are not addressed here, feel free to contact us directly.
For the uninitiated, the Gigafactory is a massive battery factory located in the Nevada desert. The keyword here is massive. The structure has a footprint of 1.9 million square feet, which houses about 4.9 million square feet of production space—making it the second-largest building in the United States. Tesla is also expanding the Gigafactory, and by 2020 it will likely become the largest building in the world. (As a side note, wild horses—Mustangs—roam freely in the surrounding desert environs. It’s a picturesque, if barren, setting.)
Broadly speaking, Tesla’s mission is to accelerate the world’s transition to sustainable energy. But to do that—at scale—it really comes down to its battery production process, which is why we are so interested in getting a closer look at the Gigafactory. For Tesla, batteries need to be both cost-efficient and energy-dense, and the process by which they are assembled—and placed into battery modules and packs—must ultimately be automated.
Big picture: After touring the facility, we feel highly confident in Tesla’s production process. Previous bottlenecks appear to have been remedied, and we’re increasingly optimistic in Tesla’s ability to hit— and sustain—weekly production rates of 6,000 Model 3 battery units per week, and with new Grohmann machine, scale to ~8,000 / week with minimal additional capital investment.
Of course, production rates at Tesla’s Fremont facility must be met as well for Tesla to achieve high Model 3 overall production output. Similar to our experience at the Gigafactory, Fremont appears to be on track as well. George Galliers, an analyst at Evercore ISI who visited the facility in August, concluded that he “did not see anything to suggest that Model 3 cannot reach 6k units per week and 7k to 8k with very little incremental capital expenditure.”
We won’t get into too many technical details here, but Tesla maintains a strong partnership with Panasonic to create 2170 Lithium-ion battery cells, using NCA chemistry. For a variety of reasons, from density to cost, we believe these batteries and further refinement will be the key to Tesla’s long-term success, both in the Model 3, as well as its other EV products. But again, it all starts with the Gigafactory and Tesla’s investments in creating cost-efficient battery systems. This remains a large barrier to entry, and an advantage over Tesla's competitors.
We also continue to believe that small cells are superior for several reasons, making it perplexing that many legacy OEMs continue down prismatic or pouch paths. Tesla is also proactive—not reactive—in its refinement of battery process, looking ahead many years for potential shortfalls in commodities. We believe this cannot be said for its competitors. (See: WSJ: GM’s Electric Dream in China Suddenly Looks Underpowered)
Back to our visit. Our Gigafactory guide for the day was Martin Viecha, head of Tesla’s investor relations, who was insightful and open to our questions. Below are some key takeaways from our visit and conversations with Viecha. While anecdotal, there was a positive energy and high degree of organization, running contra to what is often presented in the media.
Some high-level observations:
● As of mid-2018, the Gigafactory is now the highest-volume battery plant in the world, according to Tesla. It currently produces batteries at about 200 million per quarter, closing in on a one-billion per year production rate. Tesla now produces more battery capacity than all other car manufacturers combined, including China, with a run rate of approximately 20 gigawatt-hours.
● Tesla will likely achieve a battery cell cost of $100 per kWh by the end of the year, so long as commodity prices remain stable.
● In the first ~45 days of offering Model 3 test-drives, the company reportedly received 60,000 sign-ups, according to Viecha.
● Grohmann Engineering will help module production become three times faster, and three times cheaper, according to Viecha. Their new system will be sent to the Gigafactory by the end of Q3 or beginning of Q4. The Grohmann machine will be in Zones 1, 2, 3, and Tesla will be receiving three machines. The process was designed to alleviate the previous bottleneck in module production which delayed Model 3 production significantly. The machine is already built, and points to the advantage Tesla will have in building future Gigafactories. They have learned many painful lessons, but have a solid blueprint for porting the factory across the world.
● Preliminary estimates for Q3 production rates will be around 50,000 to 55,000 Model 3s, but deliveries may be higher.
● The Gigafactory is ~90% automated, according to Viecha. Eventually, battery cell production, energy pack assembly, and drive train unit production will strive for full automation.
● Tesla will likely start producing the shorter-range Model 3 in the next eight months. Right now, they are focused on selling higher-margin cars where demand continues to exceed what is being produced.
● We believe Tesla is creating a best-in-class self-driving technology. According to Tesla, the company believes it can gather 1 billion miles of data per year from current drivers.
● According to Tesla, by next year they will start exporting Model 3s to other countries. They will also begin to earnestly produce Semis by 2020.
During our visit, we were also offered a firsthand look at the levels of automation Tesla is now using to construct and integrate battery modules into Model 3 packs. It’s a fascinating and futuristic system.
Cells from the Panasonic wing of the Gigafactory are carted over to assembly lines on self-driving vehicles. From there, cells are loaded into “Zones 0 - 4,” where the cells are placed into modules and packs and tested for quality. For obvious reasons, Dan and I were highly interested in how this automation process works—and how Tesla is using this automation to improve its production process.
As Tesla ramps up production of Model 3s, its ability to grow and ultimately achieve profitability hinges on its ability to create battery packs efficiently. Last Fall, the Gigafactory faced production bottlenecks (and subsequent production delays) because of issues in modules production, but since then, these issues have largely been resolved, according to Viecha. Overall, we walked away highly impressed with its truly state-of-the-art approach to automation and applications for replication.
The tour itself was highly absorbing and informative, but the last part of the trip—the test drives—well, that was the really fun part. Tesla’s Model S P100D in “ludicrous” mode gets from 0-60 in about 2.4 seconds. The Model 3 Dual Motor All Wheel Drive Performance gets there in about 3.4 seconds. If you haven’t taken one out for a test drive yet, go do it. I assure you it’s unlike anything you’ve ever drive before. (Try not smiling while punching it 0-60—it’s impossible.)
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Arne Alsin and Worm Capital clients are currently long Tesla (TSLA), and stand to benefit if the trading price of Tesla increases.
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