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Tesla and Panasonic team up to slash battery costs by 30%

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New York City, New York – (StockNewsDesk) – 08/03/2014 — On Thursday, Tesla announced that it would be collaborating with Panasonic to build a large-scale battery plant in the United States. The plant will be aided by an associated supplier complex – the two of which will be referred to as the ‘Gigafactory’. The plant’s completion is expected to take place by 2020 and employ 6,500 people who will build batteries for all future Tesla models, bringing the battery production ‘in house’. Tesla has been working on making the electric car affordable and feasible when compared to conventional automobiles. The company believes that this is the next critical step in advancing electric car technology to customers since high battery costs are the primary reason for the expensive MSRP of electric cars. The  location of the plant has not yet been decided, but states that can provide expertise for such a project have been shortlisted: California, Nevada, Arizona, New Mexico and Texas. According to the agreement, Tesla will acquire the land, building and utilities while Panasonic will be investing in equipment and batteries. At the final step of the procedure, Tesla will step in again and assemble Panasonic batteries on site to create battery packs.

So far, electric car sales have been less than terrific; in fact, the sales have been disappointing as Model S, Nissan Leaf and Chevrolet Volt have all struggled for auto sales in the first half of 2014. Tesla set its sights on delivering 35,000 vehicles in 2014 and started off the year with 6,457 car sales in the first quarter, marginally beating expectations. Guidance for the ongoing quarter was 7,500 deliveries while production was significantly higher at 8,500-9,000. Tesla has been focusing on increasing production and targeting European and Asian markets for its sales. If Tesla manages to get 9,000 deliveries in the present quarter, it would suggest that demand is keeping up with the supply, and a 20% increase in sales will send a bullish sign to the market.

Ahead-of-pack

Panasonic cemented its collaboration with the US car company after Tesla raised $2.3 billion in March for funding the Gigafactory project. The company plans to cut battery manufacturing costs by an estimated 30%, but Standard & Poor’s gave Tesla a junk credit rating in May, suggesting that its battery ambitions have significant risk attached with it. However, this is a necessary risk for Tesla as it will not be able to offer cheap electric cars unless and until it decreases the battery production costs. On the flipside, Panasonic stands to lose its investment in the project if Tesla is unable to sell enough cars to satisfy their expectations.

Tesla insists that its inability to supply enough cars is the bottleneck and that there has been no shortage of demand for its cars. The company has decided to sell cars in Europe and China, which would essentially mean fewer Tesla sales in the US since output is limited. With the construction of Gigafactory, a large and fundamental aspect of this constraint will be wiped away. For this reason, Tesla’s sales in the US are expected to be lower in 2014 than in 2013.

2020-gigafactory

The creation of Gigafactory will not only help Tesla control spiraling costs of its electric cars – it will also increase the total GWh over the years. In fact, the increase will be so significant that it will outstrip the current demand for electric batteries by 100%. At the same time, Tesla’s batteries will cost much less than other car maker’s. Economies of scale will allow marginal costs to decrease as capacity production is maximized over the years. Currently, electric cars make up less than 1% of the global car sales.

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