Tesla opens factory to expand battery production, sales

By Daniel Rothberg

Published Tuesday, July 26, 2016 | 2:02 p.m.

Updated Tuesday, July 26, 2016 | 7 p.m.

SPARKS — From a hilltop inside the Tahoe-Reno Industrial Center, the Tesla Gigafactory carves an 800,000-square-foot print into the ground. The massive battery plant is only 14 percent completed.

To one side, the interior shell of another section appears nearly completed and to the other, construction workers are laying the groundwork for a section that will help manufacture Tesla products.

Tesla is speeding up construction here. About 1,000 construction workers are involved in the project. Work goes on throughout the week, with some workers coming in at night to pour concrete. On Tuesday, Tesla offered media a look inside the Gigafactory, expected to cost $5 billion when it finally reaches 5.8 million square feet and becomes what Tesla is touting as the world’s largest building by footprint.

The factory has been partially operational for several months. In the fall, the company relocated assembly of its energy storage batteries from its California factory to the Gigafactory. And Tesla has doubled down on its construction schedule so it can begin producing lithium-ion battery cells here this year — earlier than it initially projected — to meet demand for a $35,000 Model 3 sedan launching in 2017.

When all is done, Tesla Chairman and CEO Elon Musk told reporters in a conference that the company still hopes to cut battery costs more than 30 percent. The Gigafactory is key to fusing Tesla’s desire to be a mass-market automotive and energy company. In the coming years, it aims to produce several affordable cars and emerge as a large player in the energy storage market with commercial and residential battery packs. Those packs give customers ability to store rooftop solar at night and better control their energy.

“There is a need for stationary storage almost everywhere on Earth,” Musk said.

Tesla picked Nevada for its Gigafactory site in 2014 after the state offered it an incentive package and tax breaks worth an estimated $1.3 billion over several years. It was hailed as a big economic development win by the state, one that was projected to bring 6,500 jobs to the region. On Tuesday, Musk raised the bar, saying that the factory could employ nearly double that, about 10,000 people, within the next five years.

“The partnership between Nevada and Tesla set into motion the creation of thousands of new jobs and developed opportunities for existing businesses with an infusion of millions of dollars into our economy,” Gov. Brian Sandoval, who is on a trade mission, said in a statement. "This selection placed Nevada on the international map as a destination ready to lead in emerging technologies and advanced manufacturing.”

At one point, Musk likened the location to the “Wild West,” reflecting on the area's wild horses that often drink out of the ponds at the expansive Tahoe-Reno Industrial Center where the 3,200-acre site is located.

"I find this to be quite romantic," he said. "It feels like the Wild West."

About 75 percent of the subcontractors for the plant are Nevada companies or have ties to the state. Nevadans comprise 70 percent of the construction workforce, Tesla said, and 94 percent of the employee workforce. In the coming months, they will be working at an accelerated pace to build out the factory. The factory is expected to produce 35 gigawatts of batteries by 2018 for about 500,000 vehicles. For reference, New York City’s annual energy use is estimated at around 52 gigawatt hours.

The factory unveiling comes at an interesting time for the company, which announced an offer last month to acquire SolarCity for $2.8 billion (Musk is also the chairman of SolarCity). Proponents of a deal argue consolidating the two firms would leave Tesla positioned to better capitalize on rooftop solar and battery storage technologies. Many argue that the energy storage could help make rooftop solar economically advantageous, even in places where regulators are approving less favorable rate structures for customers.

SolarCity pulled out of Nevada earlier this year after state regulators raised a fixed fee for solar customers and changed the state’s net metering policy so that customers would no longer be reimbursed at a retail rate for their excess electricity. Instead, customers will eventually be reimbursed at a lower wholesale rate.

Energy storage production will comprise about one-third of the factory’s output but could increase. Tesla produces a Powerwall for residential energy storage and a larger Powerpack for commercial storage.

Analysts say producing batteries in-house, instead of buying batteries like other automakers, can help bring down costs but is not without risks, such as overproducing batteries if sale estimates are off.

Tesla also has competitors, including a Chinese automaker BYD Co. that is producing batteries and energy storage systems. It is planning to bring a low-cost electric car to the U.S. in a few years. Musk said there are still ways for Tesla to reduce costs, including improvements in factory efficiency and eventually building more battery factories in Europe, China and other regions where its cars are sold.

The Associated Press contributed to this report.