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Most of the news coverage of the Tesla Motors earnings call last night focused on how the company’s stock fell, in spite of the fact that Tesla is on track to meet its sales and margins goals. But in terms of the long term success of the company, a more important part of the call was CEO Elon Musk’s comments about batteries. 

We’ve said before that batteries are the limiting factor in electric vehicles, but our point has mainly been that they’re too big and expensive (see “How Tesla is Driving Electric Car Innovation” and “Will Electric Vehicles Finally Succeed?”). Musk highlighted another challenge: sheer production capacity.

You’d think that with all the electronic gadgets in the world, we’d have a pretty large battery manufacturing capacity worldwide. But the demand for electric vehicles—if they ever take off—will completely overwhelm the demand for batteries in electronics.

Musk said that to produce 500,000 cars a year, Tesla will need to build a “giga” factory:  “we are doing something that’s comparable to all lithium-ion production in the world in one factory.”

Musk said the details of the plant are still being worked out. But he says it will likely take in raw materials on one end and produce completed battery packs at the other. Currently, battery production is split up, with electrode materials, separators, current collectors and so on sometimes being made in separate facilities, then shipped to a factory that assembles them into cells, and then the cells are often assembled into a battery pack somewhere else.

It’s not clear that putting everything in one spot, and having one company in charge of all the parts, is necessarily a good idea. It would cut out the middle man, but might not be able to take advantage of innovations by other suppliers.

The plant, Musk says, would run largely on solar power and be able to recycle old batteries, “so old packs would come in one side and get reprocessed as new packs,” Musk said. 

Tesla reported that it had delivered 5,500 cars in the quarter and had a net loss of $38.5 million.

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Tagged: Energy, Tesla Motors, batteries, Model S, Elon Musk, Lithium ion batteries

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