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Tesla Plans to Start Building Its Gigafactory Next Month

Elon Musk says he’s increasingly confident that a massive factory will lower battery costs enough for a mass-market electric vehicle.

Tesla Motors said it will start building a massive battery factory next month. A month or two later, it will start building a second factory in parallel. With construction started at two locations, the company reasons, it will be more likely that one will be ready in time to meet increasing demand for its electric cars.

The factory, which Tesla calls a gigafactory, is central to the company’s plan to bring down the cost of electric cars and start producing a mass-market vehicle that will sell for about $35,000. Its current vehicle, the Model S, can sell for well-over $100,000. Lowering the cost of the battery will be central to producing the cheaper car, since the battery is the most expensive part of the Model S, accounting for about a quarter of the cost of the car. The factory, which is designed to make enough batteries for over 500,000 electric cars when at full production in 2020, could bring down costs in part through economies of scale. (Tesla expects to sell a total of 35,000 cars this year).

Today, in a call with analysts, CEO Elon Musk said that the gigafactory could reduce battery costs by more than the previously announced goal of 30 percent. The optimism comes after talks with suppliers suggested new ways to reduce the cost of starting materials (see “Does Musk’s Gigafactory Make Sense?”).

On the call Musk provided a clearer picture of how the gigafactory will work. Tesla will only operate some parts of the plant. Another company would make electrode materials, for example. Another—almost certainly Panasonic—will assemble battery cells. Tesla will assemble the cells into complete battery packs, as it does now with its Model S. Musk likened the gigafactory to an industrial park all housed under one roof.

Tesla also talked about progress in China, where it recently started selling vehicles. It has installed three fast charging stations (called superchargers) that are powered by solar panels. The decision to use solar panels addresses the concern that charging electric cars in China could increase pollution, since most of the power on there comes from coal plants (see “Selling Teslas in China Won’t Do Much for the Environment”).

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