Tesla Motors has signed a deal with Panasonic to help the electric vehicle company build a 10 million square foot gigafactory that will produce low-cost, automotive-grade batteries that Tesla hopes will pave the way for an electric revolution in the auto industry.
The gigafactory, which takes its name from the gigawatt electrical unit of measurement, is planned to produce half a million lithium ion battery packs every year by the end of the decade, which will provide up to 50 gigawatts of electricity per year. It will also be the production site for batteries used to store electricity generated from solar panels.
"The Gigafactory represents a fundamental change in the way large scale battery production can be realized," says Tesla chief technical officer and co-founder JB Straubel in a statement. "Not only does the Gigafactory enable capacity needed for the Model 3 but it sets the path for a dramatic reduction in the cost of energy storage across a broad range of applications."
The agreement calls for Panasonic to invest in the machinery and equipment used to manufacture the batteries. Tesla, which owns and manages the factory, will use these batteries to assemble the battery packs to power its cars. Half the massive factory's floor space will be dedicated to Panasonic's activities, while Tesla's battery pack operations and other suppliers share the other half.
The goal is to create low-cost battery packs by volumes, which will help Tesla push for the mass-market acceptance of electric vehicles. Despite their reputation for being energy-efficient and environment-friendly, electric vehicles have mostly remained a niche market because their large batteries call for higher prices than conventional gas-powered vehicles. Tesla, for instance, has sold only 9,100 cars in the first half of 2014 and 1,500 cars this June, although its numbers have seen a significant increase from the same period last year. Still, at the rate it's going, Tesla faces a challenge of meeting its goal of selling 35,000 cars by the end of this year.
Tesla has yet to announce the location of its project, although it is said to be in talks with various states, including Arizona, California, Nevada, New Mexico and Texas, hoping to lure the company into their borders. The company plans to invest $2 billion initially in the construction of its gigafactory, although total investments in labor and equipment could soar to $5 billion. By the end of 2020, Tesla expects to employ up to 6,500 individuals for the factory.
The deal's announcement comes just days before Tesla's second-quarter earnings report on Thursday. Hours after the announcement, the company said its losses grew by more than half from $30.5 million in the same period last year to $62 million. However, adjusted earnings exceeded analyst expectations and were up to 11 cents a share.