Why There’s Market Space For 5 Or More Gigafactories By 2020

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Originally published on The Handleman Post.

By Clayton Handleman

UPDATE: The wildly successful unveiling of the Model 3 with 225,000 reservations and counting as well as comments from Musk suggesting revision of plans, suggests that this article may be conservative in its estimates.

The transformational aspect of the Gigafactory is that it will bring down the cost of Li-ion storage using volume and the experience curve effect. That, in turn, will bring down the cost of electric vehicles, accelerating their move into the mainstream. What Musk and company aren’t sharing is the backup plan for the Gigafactory. Should energy storage and EVs hit a speed bump, the traditional ICE auto industry offers an addressable market for more than the entire output of the factory. Li-ion is very close to the tipping point at which it will replace conventional lead-acid batteries for engine cranking. This assures that they can keep driving down the cost of EV batteries even if unforeseen events, such as collapsing gasoline prices, reduce the rate of growth of the EV marketplace.

At 80 million cars per year, the legacy auto industry alone could soak up the output of an entire Gigafactory by switching to Li-ion starter batteries.* If trucks and other starter applications are included, 2 Gigafactories will be needed to meet demand. This will provide the volume to continue the relentless downward cost trend of batteries and storage.

Li-ion batteries are on the verge of surpassing lead-acid batteries in terms of lifecycle costs.  They already surpass their lead-acid competition in all performance metrics:

• Weigh 60% less than lead-acid batteries,
• Take up less space,
• Better charge–discharge properties,
• Last 2 to 4 times longer, and…
• Are very resilient in hot environments such as engine compartments.

But the coup de grâce for lead-acid batteries is that cost trends strongly suggest that, even on an energy basis, Li-ion will reach cost parity with lead-acid in fewer than 5 years. The Gigafactory will only accelerate this trend. With these batteries’ light weight and space savings, the auto will have no choice but to make the switch.

No doubt, one of the reasons Tesla vetted more than one site for the Gigafactory is that they wanted to be able to respond quickly to increased demand. Given that the starter battery market alone could soak up the output of two Gigafactories, it is not out of the question that there could be demand for three to four Gigafactories within 5 years, particularly if energy storage takes off. It would appear that Elon Musk may have had more reasons than simply shopping for low-cost sites when vetting a full 5 sites for the Gigafactory. (Editor’s Note: Elon has stated that the speed with which Tesla could get started and build the factory was one key — I think the biggest key — to choosing Nevada.) And all stand to benefit from this bold, or maybe in hindsight, not so bold move to transform the battery market.

*Car batteries have about 1 kWh of storage. 1 million auto batteries therefore have 1 million kWh of storage or 1 GWh. 80 million autos therefore require 80 GWh of storage capacity or 150% of the Gigafactory’s output.

This post had a short section that looks at the potential for starter motors. Notice they talk about the high cost of the Porsche, but that is a 4-year-old approach. Li-Ion batteries have been plummeting in price in that time. The Gigafactory will likely put them in the cost-effective range for starter applications.

More about the amazing Tesla Model S.

A123 moving into the lithium-ion starter battery market.