Honey, I Shrunk The Gigafactory II
- Tesla continues to proclaim its Gigafactory is ahead of plan even in terms of construction.
- This article shows that what was originally planned to be constructed isn’t compatible with what has and is being built.
- Indeed, there are even details that show Tesla knows this as well – given what it has built. This in spite of Tesla, again, proclaiming it’s building what it promised.
A Tesla Model S built to Gigafactory scale
Back in September 2015, I wrote my article titled “Honey, I Shrunk The Gigafactory (And More).” In it, I advanced the thesis that Tesla’s (NASDAQ:TSLA) Gigafactory was not going to be the size it had been promised to be. In that article I used several arguments to conclude, “The Gigafactory is being shrunk to nearly 20% of its originally intended size and will stay that way at least until late 2017.”
Since then, many others have said the same, including a Tesla spokesman during a visit to the factory.
The Shrunken Gigafactory, Round 2
However, Tesla has also continued to claim that construction of the Gigafactory is actually ahead of schedule. For instance, in a statement sent to Valuewalk.com, Tesla stated:
Tesla is currently ahead of schedule on both construction and production at the Gigafactory. To date, we have built 1.9 million square feet of manufacturing space and have started production in a portion of the facility while equipment installation continues throughout other areas. As stated previously, we will be building in phases over time and while our original forecast was to begin production in January, 2017, we actually started battery pack production in October, 2015, over a year ahead of schedule.
In terms of hiring, the Gigafactory will employee up to 6,500 people at full production. As we build the Gigafactory, Tesla continues to show an overwhelming commitment to the Nevada workforce. We have gone way beyond the state’s intention that 50% of the Gigafactory workforce be Nevada residents. Nevada residents currently comprise 80% of the construction workforce at the Gigafactory, and each and every contractor at the Gigafactory exceeds the 50% threshold. Additionally, 94% of Tesla employees at the Gigafactory are Nevada residents.
Source: Valuewalk.com, “Tesla Gigafactory construction ahead of schedule [UPDATED]”; highlight is mine
But is it really? We have rather more binding statements from Tesla than those sent to independent websites. We have, for instance, Tesla’s Incentive Agreement with the State of Nevada. This agreement includes the space Tesla expected to build by October 2017 and how construction employment would vary along time to achieve such construction area:
Source: Tesla’s Incentive Agreement With Nevada, October 2014; red highlight is mine
What can we, once again, decisively conclude from this data? We can conclude that:
- The factory was supposed to have 5.5-5.8 million sqf of constructed area by October 2017. This number seems to imply actual construction area (ground occupation, not manufacturing area, which adds up the area of all the floors). As a comparison, Tesla’s original plan for a 13.6 million sqf factory is stated as manufacturing area (to which the presently attained 1.9 million sqf compares to). The present Gigafactory construction area stands at ~800,000 sqf. Said another way, Tesla has built a factory that’s about 14% of the originally-planned size.
- The data regarding construction employment at Tesla’s Gigafactory site also says that by now construction will be dying down quickly. The most intense construction is by now done with. This is consistent with the factory staying as it is through the end of 2017 (as predicted). This obviously runs counter to the story that construction is ahead of time, that the Gigafactory will be completed, etc.
The above documents and data ought to be enough for anyone reasonable to see clearly that the Gigafactory isn’t really going to grow any more – at least not by 2017 year-end.
Yet, the official story is still different. The official story is displayed prominently exactly at the Gigafactory, and it looks like this (I will use thumbnails due to copyright considerations, click on the pictures to see the originals):
The existing factory is supposedly just a small part of total project; notice the corner “you are here”
This is how that corner looks today
This is Gigafactory 1, implying there will be others
Source: Reno Gazette-Journal, “Here’s our first look inside Tesla’s Gigafactory”
- If Tesla was going to actually build what it said it would build in the Nevada Incentive Agreement, it would have 1 year and 6 months to complete the building.
- The corner that looks so nice in all those pictures, includes the reception, doors on both sides, sidewalks, street lamps, etc.
- That corner would be in the guts of the entire factory. It and everything around it would have to be demolished months after being built.
It obviously isn’t going to be demolished: So obviously, there is no plan on building the rest – no matter what statements are made regarding construction being ahead of time. The fact is that construction is not going to reach what Tesla said to Nevada it would build by October 2017.
If Tesla is not even going to build the first Gigafactory in full, why would it name it as if it were the first of several? Promotion. After all, if this one isn’t completed, there’s no reason to believe others will be needed or come right after.
Tesla knows and plans all of this, yet it doesn’t change its public story regarding the structure. One has to ask “why?” One also has to ask what other aspects of its story it already knows aren’t true, but isn’t saying publicly.
Between the data that’s public in the Nevada Incentive Agreement and these pictures of reality on the ground as of today, we know for a fact that the Gigafactory is not going to assume its promised size by 2017 year-end. This is so regardless of Tesla’s proclamations on the fact. The construction in place is not consistent with any plan to expand it to the promised size.
The Economies Of Scale
This does bring about another interrogation.
Originally, the Gigafactory was sold as a way to bring down battery costs by 30%. The factory had to be “Giga” to enjoy economies of scale enjoyed by no one else and to bring about supply no one else could provide. But, as we saw, the Gigafactory is now going to be a fraction of its previously-announced size.
So the question is, will this size still overshadow everything else out there? Well, we might actually have a comparison. Tesla’s “present Gigafactory” has a construction area of ~800,000 sqf. This size will remain at least well into 2018. In my view, it will continue at this side indefinitely. So what’s our comparison to this?
I present to you one of Panasonic’s competing Li-ion battery factories – its Tokushima Plant. Back in 2010, Tokushima was undergoing expansion – and it certainly hasn’t shrunk since then. This expansion was to 93,809 sqm.93,809 sqm is 1.01 million sqf. 1.01 million sqf > ~0.8 million sqf.
In other words, one of Panasonic’s Li-ion battery plants, back in late 2010, was already larger than Tesla’s present effort. If economies of scale superior to anybody else’s were to come from the Gigafactory being Giga, those economies of scale can be forgotten.
This is all assuming economies of scale would be important for Li-ion battery production. A rather recent (January 2015) study titled “A techno-economic analysis and optimization of Li-ion batteries for light-duty passenger vehicle electrification” published in the Journal of Power Sources argues just the opposite. It argues that economies of scale are reached quickly in this particular industry – at ∼200-300 MWh annual production.
Presently, Panasonic has a deal with Tesla where it establishes a factory-within-a-factory inside the Gigafactory. This deal includes Panasonic supplying battery cells from its Japanese factories before meeting Tesla’s demand from the Gigafactory.
There is little reason to believe:
- That Panasonic would have a lower cost producing within the Gigafactory using the same processes it uses to produce in its other factories.
- That Panasonic would choose to sell its Gigafactory production to Tesla at a cheaper price than it would get for the rest of its production.
The whole cost-saving promise of the Gigafactory always seemed to rely on rather unbelievable propositions. Right now, we’re seeing as much in the shrinkage the Gigafactory is undergoing.
Tesla’s Gigafactory will not attain the size Tesla said it would attain by 2017 year-end. Furthermore, there’s no reason to believe that at the present size, Tesla’s Gigafactory provides any kind of competitive advantage in economic terms (battery costs versus other suppliers).
While batteries should over time see declining prices (for the same capacity), Tesla is not going to enjoy gains beyond those enjoyed by the overall market. The Gigafactory is thus not a sustainable advantage, and it could easily turn into an albatross for Tesla (though, admittedly, a smaller albatross than might have been – given it was not allowed to grow to its full size).
The thesis that the Gigafactory will be taken to its full size or that it’s ahead of plan (in terms of construction) is at odds with all known facts, even though Tesla continues to promote it.