Tesla needs battery factory on-line for new Model 3

Tesla plans to sell a lot of Model 3s

Tesla Motors Inc. is scrambling to finish building its massive $5 billion battery factory here years ahead of schedule to meet demand for its coming cheaper sedan and provide power for new types of vehicles Chief Executive Elon Musk says are under development writes Mike Ramsey of The Wall Street Journal.

Tesla has doubled the number of people constructing the "gigafactory," which sits on more than 3,000 acres near Reno. Now, 1,000 workers build seven days a week on two shifts in an effort to start churning out lithium-ion cells by late 2016.

"We have to be ready with cell and pack production well ahead of vehicle production," JB Straubel, Tesla's chief technical officer and co-founder, said during a walk-through of the factory. "We're accelerating our construction plans and accelerating our planned ramp up of cell production."

The goal is to have the factory operational before the launch next year of the $35,000 Model 3 sedan, which is about half the base price of the Model S. Tesla opened reservations for the Model 3 earlier this year, and strong demand led Mr. Musk to pull a 500,000 sales target ahead two years to 2018. He also raised $1.7 billion through a stock offering in hopes of speeding up battery production expected to lower the cost of the batteries for electric vehicles.

As of now, the gigafactory's structure is less than one-sixth the size of what the final building is expected to occupy. Most exterior walls are temporary and can be relocated. Already finished is a four-story rectangular portion of the facility, housing 1.9 million square feet of floor space.

Tesla already is building battery packs for its battery storage business there, but is importing the battery cells from Panasonic Corp. facilities in Japan.

Panasonic has committed up to $1.6 billion to the factory. Joe Taylor, chief executive of Panasonic North America, said the company is struggling to find qualified workers with manufacturing abilities. "We are running around like crazy hiring people." The Japanese electronics giant is handling the cell manufacturing and pulled forward installation of equipment.

Mr. Musk in recent weeks has laid out aggressive expansion plans for Tesla, including heavier vehicles and an energy-storage business that marries Tesla's battery business with SolarCity Corp.'s solar panels. Mr. Musk, chairman and largest shareholder of both companies, has proposed a $2.8 billion merger of Tesla and SolarCity.

The roof of the new factory may be covered in SolarCity's panels. A solar-panel field will be constructed nearby to provide additional power to the factory.

Once completed, Mr. Musk anticipates the new plant could be capable of producing a total of 105 gigawatt hours of battery cells by 2020, or enough to power 1.2 million Model S sedans–though up to one-third of those batteries are slated for stationary battery storage. About 50,000 Model S sedans were built in 2015.

The auto maker has struggled to build vehicles since it opened its Fremont, Calif., plant, suffering quality problems in addition to supply constraints. Problems building the Model X SUV have limited sales in 2016. Earlier this year, the auto maker lost both its chief of production and head of manufacturing.

Tesla earlier this month said that it had achieved regular levels of higher production and expected to produce 50,000 vehicles in the second half of 2016. Through the first six months it had delivered fewer than 30,000 vehicles.

Tesla's gigafactory will be the first ever to make a new format of battery–a 21/70, rather than the 18/650 that the auto maker uses today for the Model S and Model X. The latter cylinder-shaped battery is commonly used in portable electronics and has been used by Tesla since the beginning. The numbers stand for the width and length in millimeters.Virtually all lithium-ion battery production today is in Asia, and efforts by the U.S. government to establish a domestic battery production industry have had mixed results. A factory operated by South Korea's LG Chem in Holland, Mich., has been successful, handling the battery for General Motors Co. vehicles. Mr. Musk last week signaled there would be even more demand from his battery factory. The company aims to introduce several more electric vehicles, including a small sport-utility vehicle, a light pickup truck, a heavy-duty truck and a bus.

Nevada has promised Tesla incentives that could be worth $1.3 billion over 20 years, including the construction of a highway that speeds travel from near Carson City to the industrial park where the factory is located.

"We think this has been a great decision and has really been to Nevada's benefit," Economic Development Director Steve Hill said. Interest in the state for economic development surged after the Tesla decision, he said.

Through the first quarter of 2016, the state had given Tesla tax credits worth $9.6 million.

Sam Jaffe, a principal with Cairn Energy Research Advisors, said Tesla should be able to scale up quickly, but getting the needed cost reductions may lag.

"What they won't be able to do from a battery manufacturing perspective is make the cells as cheaply as they hoped. A lot of the price reductions from the gigafactory model come from the supply chain re-creation that they will be doing in North America. That won't be ready by 2018."

If Tesla is successful at its plant in Nevada, it could outpace all the world's existing plants' production by a factor of 10. The factory's size has led to a string of efforts to mine commodities, like lithium, in North America and to bring more processes to the region.

"If you look at where batteries are being made, it's almost all in Asia," Mr. Straubel said. "That was one of the big opportunities we have here, is to close the logistics loop from where cells are made and materials are made and move it closer to where our vehicles are made." Mike Ramsey, The Wall Street Journal