Earlier this month, Tesla Motors (TSLA -2.71%) announced that Nevada would become the official home of the electric-car maker's forthcoming Gigafactory. Slated to be the largest lithium-ion battery plant in the world, Tesla's Gigafactory promises to bring thousands of jobs to Nevada and contribute nearly $100 billion in economic impact to the state over the next 20 years. That's a big deal. However, it could also be a big problem if Tesla isn't able to secure strategic partners for the project.
Humble beginnings
Up to this point, funding, location, and resources had been the biggest challenges facing Tesla's Gigafactory. Today, the bigger issue is finding strategic partners to help carry some of the risk and supply raw materials needed for the facility. In July, Tesla and Panasonic signed an agreement to participate in the construction of the factory. Specifically, "Panasonic will manufacture and supply cylindrical lithium-ion cells and invest in the equipment, machinery, and other manufacturing tools" for the project.
Initial renderings of Tesla's Gigafactory. Source: Tesla Motors.
In this way, Panasonic acts as both a supply partner by manufacturing cylindrical lithium-ion cells for the Gigafactory, as well as an investment partner since it will be purchasing the necessary manufacturing tools for this role. Yet Tesla likely needs more investment partners to help front the cost of building this massive $5 billion factory. The EV maker is investing $2 billion in the project from cash it raised in a convertible debt offering earlier this year. However, that leaves roughly $3 billion in funding that Tesla still needs. The financial terms of Panasonic's investment in the Gigafactory were not disclosed.
Tesla has said Panasonic will be its "principal partner" for the Gigafactory, but that it would also need other supplier partners involved as well. At the company's press conference earlier this month to announce Nevada as the official home of the Gigafactory, Tesla's chief executive Elon Musk said, "Together with Panasonic and other partners, we look forward to realizing the full potential of this project." Unlike investment partners, supplier partners would be responsible for producing the raw materials required for manufacturing Tesla's electric car batteries.
In initial renderings, solar panels cover the Gigafactory's roof. Source: Tesla Motors.
While Tesla has already broken ground on its Nevada site, the EV maker has not yet announced any additional partners in the project. If Tesla's Gigafactory isn't able to get up and running by 2017, then Tesla wouldn't be able to sell its mass-market car as planned. The Gigafactory is critical to Tesla's long-term success because it will allow the company to reduce the cost of the battery packs by as much as 30%, therefore lowering the overall cost of its cars for consumers.
There's speculation Toyota could invest money in the project because the two companies have worked together in the past. Musk recently told reporters in Tokyo that he thinks there could be a new strategic partnership between Tesla Motors and Toyota in two or three years.
However, at this point, that seems unlikely. The two automakers ended their four-year relationship recently, in which Tesla was supplying powertrain components for Toyota's RAV4 electric SUVs. The main reason for Toyota's exit was because the carmaker is shifting its focus away from all-electric cars to those powered by fuel cell technology. Musk has been vocal about his distaste for fuel cell technology, often referring to them as "fool cells."
As you can see, the two companies are moving in very different directions, and unless Tesla's Gigafactory begins manufacturing so-called "fool cells" instead of lithium-ion batteries, it is unlikely that Toyota will become a partner on the project.
A more likely partner in crime
Aside from Panasonic, one company Tesla can likely count on to help out with its Gigafactory is SolarCity (SCTY.DL). This would be an obvious "supplier" fit for a number of reasons. For starters, the massive, 5-million-square-foot facility will be powered by renewable energy, including solar and wind sources. Given Tesla's ongoing relationship with SolarCity, it is likely it will be the company to outfit the plant's solar infrastructure.
A home with SolarCity energy panels.
Source: SolarCity.
SolarCity, after all, already supplies the solar panels used to power Tesla's Supercharger stations around the world. The EV maker, meanwhile, provides SolarCity with lithium-ion cells for its solar energy storage systems. Then there's the fact that Musk is on SolarCity's board and is one of the company's majority shareholders. Oh, and SolarCity's chief executive, Lyndon Rive, is Musk's cousin. Given these factors, SolarCity as a supplier partner for Tesla's Gigafactory is a no-brainer.
Unfortunately, that might not be enough. In addition to supplier partners, Tesla also needs more cash to fund the buidout. Tesla needs the Gigafactory to be up and running by 2017 if it hopes to produce enough battery cells to power its planned mass-market EV. But it could be difficult to find additional partners to invest in this project when companies like Mercedes-Benz owner Daimler are publicly saying they won't invest in the Gigafactory because of the long-term uncertainty of lithium-ion battery technology.
Even longtime partner Panasonic was skeptical about getting involved at first. In fact, Panasonic's president, Kazuhiro Tsuga, told reporters earlier this year that the company had not yet committed to Tesla's Gigafactory because it raises serious investment risks, according to Bloomberg. There is no doubt the Gigafactory is a massive project, but if Tesla can't build out a network of strategic partners in the months ahead, it could come back to bite the company down the road.
