Tesla CEO Elon Musk knows the world has come to rely on lithium-ion batteries. After all, they can be found in almost all cell phones, tablets and laptops.
So the promise to build a $5 billion lithium-ion gigafactory that will more than double the production of these batteries seems like a no-brainer.
But is it the real deal or is Musk just manipulating Texas, Arizona, New Mexico and Nevada with a clever negotiating tactic?
Let’s look at the numbers: Tesla sold 23,000 sexy electric cars in 2013. Musk wants the gigafactory to start producing lithium-ion batteries in 2017 that by 2020 would make enough batteries for 500,000 electric cars. That’s 21 years worth of batteries at Tesla’s current sales pace.
Let’s look at facts: Battery companies usually only announce factories once a site has been selected with funding in place, plus they ramp up their production over time. In 2009, President Obama launched an ambitious $2.4 billion grant program that was earmarked for a new program to launch an electric car battery industry in the U.S. That project fizzled.
So what is Musk smoking to think this gigafactory can be a success?
First, he thinks Tesla will create a much larger electric car market. He believes the factory will create so many batteries, it will greatly reduce their cost, which could help him create a cheaper, more mass-market Tesla that would compete with the Nissan Leaf and Chevrolet Volt.
In 2013, Tesla’s sales were on pace with the Leaf, so just imagine how Musk could do with a version that the average car buyer could afford. Musk thinks his cheaper car could go twice as far on a charge and even accelerate faster than the Leaf.
Second, Musk believes Tesla’s plan to build the batteries from raw materials as opposed to assembling them will also help reduce costs. It also won’t hurt that all of the parts – electrolytes, graphite electrodes, battery packs with electronic controls and cooling systems – are all likely to be built together under one roof. The factory will also recycle materials and use solar and wind to generate power at the facility.
Experts say this can be done, but call battery manufacturing a “complex process involving many steps.”
Third, Tesla has already pledged $2 million of its own money to the gigafactory, which is estimated to need $5 billion total to get going.
But ultimately, whether the factory is built or not, the entire thing is a great PR move for Musk, especially in states like Arizona that so far have banned the automaker’s direct sales model. As recently as last week, the Arizona Legislature was discussing getting rid of the ban, though it ultimately was held up.
Still, no matter what happens with the gigafactory, Musk has people talking about Tesla. And the more people talk about Tesla, the likelier they are to try one. And that in and of itself could be just what the doctor ordered to make Tesla sales soar.