Tesla Gigafactory: nothing but good news for energy storage

As Reno wins the jackpot to be the location of the Tesla Gigafactory, we look at what it means for Tesla, Nevada and the energy storage industry.
As Reno wins the jackpot to be the location of the Tesla Gigafactory, we look at what it means for Tesla, Nevada and the energy storage industry. Photo credit: Michael Ocampo
As Reno wins the jackpot to be the location of the Tesla Gigafactory, we look at what it means for Tesla, Nevada and the energy storage industry.

As Reno wins the jackpot to be the Tesla Gigafactory location, we look at what it means for Tesla, Nevada and the energy storage industry. Photo credit: Michael Ocampo

The waiting is finally over. And surprise, surprise, Nevada, the state that never missed an opportunity to bend over backwards for big business (an attitude Bugsy Siegel may have appreciated), has scooped Tesla’s Gigafactory for a mere USD$1.25bn in subsidies over the next two decades.

Okay, let’s park the cynicism over the vast sums corporations squeeze out of the tax-payer and look at the positives of what will be a real game-changer in energy storage, not just for electric vehicles and their drivers, as well as providing a bit of background.

Apart from the aforementioned incentives, general lack of red tape and zero income tax, Nevada can offer Tesla some other great advantages. For a start, the location near Reno is fairly inexpensive and not too distant from Tesla’s car factory in Fremont, California.

It’s probably also near enough to the Bay Area and Los Angeles to be attractive to the 6,500 skilled workers that Tesla will need to attract to help make the Gigafactory project a success.

Resource-rich environment

In addition to the proximity of human resources, the state has a lot of water and energy, much of which is renewable. As well as variable sources such as sun and wind, Nevada has plenty of constant green energy in the shape of geothermal.

As Elon Musk has committed to the plant being “a net zero-energy factory” that will be “powered by renewable energy,” this was another factor that decided in favour of Nevada. Which brings us to our first advantages for our industry.

Running the world’s biggest lithium-ion battery factory on renewable energy will be quite a feat, and set a precedent.

Whether the energy is bought in, or produced on-site from the vast solar-panelled roof shown in press pictures of the proposed Gigafactory, Tesla is going to have to think very carefully how it employs energy storage to ensure operations are not interrupted.

Even when demand peaks at around 100MW, as a factory of this type and size would need.

Local lithium a factor?

Lithium isn’t a rare-earth metal; in fact, it’s pretty abundant and not a limiting factor in the production of lithium-ion batteries.

Like almost everyone else, Tesla sources its refined lithium carbonate from China, which obtains the raw mineral from Australia, Chile and Bolivia.

However, the news of the Gigafactory being located in Nevada, with the only functioning lithium mine in the US, boosted the share prices of local lithium companies Western Lithium, Lithium Corporation and Pure Energy by between 30 and 40%.

Meanwhile, Western Lithium has been generating interest with its demonstration lithium extract plant, based in Nevada.

There’s no sure sign that Tesla is going to switch to local production any time soon, but it does at least now have options to buy American in the longer term.

Over-production fears

Within 48 hours of last week’s announcement, the tricky questions started, with commentators asking if Musk’s grand designs weren’t hubristic over-reach.

Whatever you point of view, they are certainly ambitious: 35GWh worth of cells and a total 50GWh worth of battery packs by 2020, only three years after the Gigafactory is scheduled to start production.

Compare this with the mere 6-7GWh that the mighty Panasonic current produces and you get an idea of the scales involved. The aim, says Tesla, is to drive down electric vehicle ownership costs by 30%.

Cheaper cars will boost demand, leading to a greater need for batteries, driving down costs still further in an economy-of-scale driven spiral.

The problem is, at least according to Lux Research, even a 30% cheaper Model S won’t be enough to drive up sales to soak up all those batteries.

Thinking beyond electric vehicles

In fact, Lux predicts that over-production will top 50%.That, however, assumes that the plan is simply to feed an as yet non-existent armada of Tesla electric vehicles.

Using the spare capacity for stationary energy storage packs in addition to electric vehicle batteries is an alternative scenario.

Tesla and SolarCity are already partnering to provide solar ’n’ storage options in the US, so as the solar industry goes from strength to strength and the case for combined storage gets stronger, the behind-the-meter market is an obvious home for those extra batteries.

A 100% renewable battery factory sets a precedent. One on this scale sets another, giving confidence to other current and potential market players to invest in lithium-ion batteries in the longer term.

Essentially, Elon Musk’s gamble has emboldened others to do so, albeit on a smaller scale.

A bright future for lithium-ion

AES Energy Storage President Chris Shelton candidly stated that the Gigafactory has positively influenced his company’s decision to concentrate on lithium-ion as the battery chemistry of choice for the next seven to 10 years.

Meanwhile, other big battery factories are in the pipeline. Mere hours after the Tesla announcement, the story broke that Foxconn had plans of its own.

The $812m project is thought to be part of CEO Terry Gou’s ambition to push electric car prices down to just $15,000. It also segues nicely into Foxconn’s deal with BYD to start an electric vehicle rental business in China.

In short, whatever the competing technologies, lithium-ion is here to stay, assuming that the world’s biggest factory goes ahead without any major headaches.

Although, with so much potentially at stake, you can be sure the state of Nevada will have all hands to the wheel.

Then what? In addition to more factories in the US, Tesla says it wants to expand in China, despite what must surely be tough competition from the likes of Wanxiang, controversial buyer of A123.

But wherever the batteries are manufactured, price reductions from increased economies of scale are just the sort of shot in the arm energy storage needs.

Written by Mike Stone

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