Tesla Gigafactory & Powerwall — Dog & Pony Show?

June 16, 20168 years ago Christopher Arcus 67 Comments

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Editor’s Note: There have been some quite negative and cynical articles out there lately regarding Tesla Energy, the Tesla Powerwall, and the Tesla Powerpack. We’ve got more coming to hopefully clear up the story, but here’s an overview of the public Tesla Energy store from start till today.

Was the Tesla Energy venture just done as a dog and pony show to assuage investors that it would be safe to build the Gigafactory?

Maybe not. The first bond auction held years ago to raise $1.6 billion for it was oversold and produced $2 billion. The Powerwall announcement was later, April 30, 2015, and post-dated the financing. Tesla pledged the largest Gigafactory amount, about $2 billion, and Panasonic pledged $1.6 billion, but more on that later. Doesn’t sound much like Tesla is having trouble raising the money or has to quell fears from the business community.

“Turns out the market liked Tesla’s terms – and future prospectus – as investor demand was incredibly strong according to the sale report from FT.   In the end the offering was raised to $2 billion and with a provision for an over-allotment that could make the offering reach $2.3 billion. Always nice to get an extra $400 to $700 million that you didn’t ask for,” InsideEVs wrote a couple of years ago.   ”Details of the offering: Tesla sold $800 million of their 5 year note and $1.2 billion in the 7 year. The 5 year notes have a coupon payment of 25 basis pts, with the 7 year paying 125 basis points. Both the 5 and the 7 have an equity conversion premium of 42.5% (which equates to about $360 per share). At the underwriter’s discretion, the offer can expand by a further $300 million.   Of note: Tesla’s previous offering last May was also oversubscribed, and was expanded twice. Those notes carried 1.5%, with a 35% conversion.   This deal is the largest US convertible bond sale in over 2 years.”

Enter the Powerwall and Powerpack

Then the Powerwall and Powerpack were announced on April 30, 2015. They had a tremendous reservation response from customers that shocked Tesla as well as others in the energy storage market.

The initial response from Tesla in November 2015 was a planned increase in Gigafactory area of 40%.

Institutional investors were never the problem and it was never about money. Look at what happened. Panasonic sat on the fence and announced it would take a wait and see attitude towards EV orders. It looks like Tesla would have none of that, and wanted Panasonic to get going on Gigafactory construction and personnel. Even though the Powerwall offering was a big deal, it didn’t ignite anything in Panasonic for a while. But Panasonic eventually got on board and did commit ~$1.6 billion into the Gigafactory.

There was essentially an open admission from Panasonic that it was reluctant to invest fully until it saw sizable orders/demand. I don’t think Tesla gave a hoot about the money. It was Panasonic’s commitment to get going that Tesla wanted.   It might be speculated that Tesla Energy was a way to spur Panasonic, but it doesn’t seem to have had an effect immediately.

Notably, the battery chemistry in the Powerwall is NMC, different from the one provided by Panasonic.

The cars use NCA chemistry cells Panasonic seems to have a lock on. Recently, in May 2016, we heard Tesla was seeking more batteries for Tesla Energy from LG Chem, the NMC type, but not the NCA type Panasonic excels in, and Elon clarified that Tesla was sticking with Panasonic for battery cells for its vehicles (the Model S, Model X, … and Model 3).

Enter Model 3

Consequently, Tesla revealed the Model 3 on March 31, 2016, with initial reservations eventually totaling almost 400,000.

While the initial Powerwall and Powerpack (no-cash-down) “reservations” (really, expressions of interest) seemed large, they were nothing like the number of batteries demanded for the Model 3 reservations about a year later. At this point, the demand from the two signaled a staggering amount of volume at an earlier date than originally anticipated using staggered development phases until 2020. Tesla had already responded last year by announcing the Gigafactory was going to expand to 40% larger area. But that wasn’t the end of the good news, and it’s not entirely clear if footprint really increased, or if Tesla is just able to make much better use of the initial footprint due to better space management and efficiency….

Gigafactory Output Capacity Triples

Since the demand increased, Tesla responded further. Rather than build another factory, Tesla announced that it had discovered it could produce three times more batteries in the same original Gigafactory footprint than it originally expected. Elon clarified that Tesla wouldn’t necessarily produce that much at the factory, but it is now the hypothetical max.

“Tesla has now realized it can produce ~3 times more batteries in the same initial planned form factor of the Gigafactory than the crew initially expected,” Zachary summarized from a segment of the Tesla Shareholder Annual Meeting a couple of weeks ago.

The saga continues.