With a plan to build the world’s largest lithium-ion battery factory, Elon Musk continues his long bet against all the incumbents around him: rival car companies, battery-makers and the scientific establishment. The wager is based on two big assumptions: that no one else will make a meaningful breakthrough in battery science and render the $5 billion factory obsolete; and that sales of his Tesla autos will rise more than 22-fold by 2020.
The risks are substantial that one or both of the assumptions will prove invalid. It is especially difficult to imagine the sale of about 500,000 Teslas annually starting just six years from now; he sold just 22,000 Tesla S’s in 2013, and there are only 180,000 electric vehicles of all types on the road around the world.
A successful “giga-factory,” as Musk has christened it, would catapult US lithium-ion battery production from its current minuscule scale into a commanding global position. At once, the US would manufacture as many lithium-ion batteries as the rest of the world—current powerhouses China, Japan and South Korea—combined. “He would swallow up all of Asia in one fell swoop. He would create a new pole of lithium-ion battery manufacturing,” Kevin Gallagher, a researcher at Argonne National Laboratory, told Quartz. (Here is a pdf of Musk’s slide deck.)
Musk, casting a skeptical eye on the science, decided when he founded Tesla that the leap in electric cars would come in better engineering and management of existing battery systems—and installing these off-the-shelf batteries into a triumphantly styled vehicle.
His giga-factory is the next step. Scheduled for completion in 2017, it is meant to create economies of scale and reduce the cost of the Tesla battery pack by 30%. His aim with this cheaper battery is to sell a third-generation Tesla for the masses—a sexy electric car in the $30,000-$40,000 range. He is raising up to $1.84 billion in debt to finance the development of this mass-market car and the construction of the battery factory.
Musk’s success ultimately will hinge on whether he truly can sell 500,000 vehicles a year. “That is the big if,” Gallagher said. “If he can get that volume, that would be a big deal.”