Making the Case for Tesla and Its Gigafactory

David Fessler
by David Fessler, Energy & Infrastructure Strategist, The Oxford Club
TeslaMotorsYorkdale5

Here’s something to add to your bucket list: hitting the accelerator on a Tesla Model S. The new Models have a “Ludicrous” setting.

After test-driving a Tesla, I can personally attest that the standard acceleration (0-60 mph in 3.2 seconds) is incredible. In Ludicrous mode, the acceleration is 0-60 mph in 2.8 seconds.

That’s faster than any street-legal internal combustion engine vehicle. Of course, all that speed comes at a hefty price... $71,000 MSRP to be exact.

It’s no wonder why so many electric vehicle (EV) fans - and even curious motor heads - are interested in Tesla Motor’s (Nasdaq: TSLA) inexpensive EV offering, the Model 3. Here’s a picture of an early mock-up given out by the company:

Tesla’s third-generation car looks a lot like the Model S. It’s supposed to be about 20% smaller - and cost about half as much.

The price Elon Musk has been throwing around ever since he first announced the Model 3 is $35,000. When can you get your hands on the steering wheel of one? The answer is, “in about two years,” according to a tweet by Musk in September.

Why the wait? It’s simple. In order to deliver that $35,000 price tag, Tesla Motors requires an operating battery “Gigafactory.”

Musk’s Gigafactory will make hundreds of thousands of lithium-ion batteries each year. Tesla will put them into battery packs for its cars.

The Gigafactory will also make batteries for Tesla’s energy storage unit, the “Powerwall.” The company is planning to make this available to consumers who want to store electricity for use later.

As I’m sure you can imagine, Tesla’s Gigafactory is huge - 10 million square feet, according to some estimates.

You might think a project like this - which is currently under construction - would take a decade or more to complete. But like everything else with Tesla, it’s on a fast track.

The company originally said it would complete construction in 2017 or 2018. However, it looks like it will be producing batteries and battery packs later this year.

Here’s a picture of the site taken by drone and posted on YouTube three months ago:

It looks practically finished!

You may be wondering why I’m so enthusiastic about Tesla and its Gigafactory. After all, Tesla shares have taken a bruising over the past six months...

That’s true. But what many folks don’t seem to realize is that the $5 billion Gigafactory will double the current world production of lithium-ion batteries.

Lithium-ion batteries are used in countless applications - from powering EVs to smartphones, laptops, power tools and even aircraft - so this is a potentially MASSIVE new market for Tesla.

The company already has confirmed partnerships with Daimler AG and Toyota. Its batteries can currently be found in the Mercedes-Benz B-Class Electric Drive and the Toyota RAV4 EV (second generation).

It’s worth noting that the Gigafactory is a joint venture between Tesla and Panasonic. Panasonic currently makes the lithium-ion cells for Tesla’s battery packs. Together, the two companies have invested $238 million in the project so far.

As I noted in my prediction piece last week, battery storage and EVs are going to make big leaps forward in 2016. Looking further ahead, within the next five years, inexpensive EVs are going to change the automotive industry.

Consider adding an EV producer, supplier or lithium miner to your energy portfolio. You won’t be disappointed.

And speaking of your energy portfolio...

Energy and commodity stocks will be the focus of this year’s Investment U Conference - to be held April 13-16 in Carlsbad, California. I’ll present my favorite opportunities in this low-price environment alongside Alexander Green, Sean Brodrick, Marc Lichtenfeld and others.

I hope you’ll consider joining us. Click here for details.

Good investing,

Dave Fessler

Have thoughts on this article? Leave a comment below.

Another Top Pick for 2016

About a month ago, we recommended Investment U Plus subscribers take a look at another renewables play that Dave is excited about, First Solar (Nasdaq: FSLR). Since then - even despite Monday’s drop - shares have climbed more than 10%.

Since Dave remains bullish on renewables and EVs for 2016 (and the foreseeable future, really), let’s revisit Dave’s initial write-up...

“What do I like about First Solar? First Solar is a solar energy company on a tear. After making a mere $5 million of net income in Q1 2015, it turned in impressive results the following quarter.

“Back on August 4, 2015, First Solar released its Q2 2015 results. Total sales were $896 million, and it made $94.5 million of net income. The company blew estimates out of the park. Revenue expectations were $790 million. Expected earnings per share were $0.49 compared to actual earnings of $0.93 per share.

“What a difference a year makes. In Q2 2014, the company had net income of $5 million, or $0.04 earnings per share. Why the big difference? It's simply solar's torrid growth...

“Since 2008, worldwide installation of solar PV systems has increased by a factor of 10. Ten years ago, no one predicted that level of growth for solar. But as I predicted, technology continued to evolve, and manufacturing costs dropped continually over the period. As a result, solar is now close to grid parity cost and even exceeds it in some areas.

“There's no reason to think that solar installations are going to slow. Right now, solar still provides only about 1% of the world's electricity. That leaves plenty of opportunity for growth. That's exactly what First Solar is doing. The company is nearly sold-out for the next year and a half. I expect it will continue to beat estimates at least through the end of this year, and likely beyond.”

- Alexander Moschina with David Fessler

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