5 June 2014
Elon Musk’s announcements about a 10 million square foot, $5 billion giga-factory have certainly raised eyebrows. As you have probably heard, the giga-factory will produce batteries for use in Tesla electric automobiles and for use as storage devices for photovoltaic (solar) electric power. Two or three southwestern States are expected to be selected to commence site development and permitting sometime this year (2014). The first to be ready to break ground will build the giga-factory. Start-up, with its promised 6,500 manufacturing jobs, is scheduled for 2017.
All of this is certainly exciting. However, the giga-factory is designed to produce about 500,000 batteries a year. That’s about double the existing global capacity for lithium ion batteries. Tesla built and sold less than 25,000 cars last year. There is a lot of grass between 25,000 and 500,000, especially in an all-electric vehicle market that just barely exists today. There are plenty of skeptics and nay-sayers. And there is a well established conventional automobile industry that doesn’t want its business model disrupted.
About 70% of the capacity of the giga-factory is presently penciled in for Tesla, especially with the much anticipated launch of a smaller, less expensive Tesla model timed for giga-factory start-up.
The remaining 30% is expected to be used for electric power storage, especially in conjunction with solar and wind powered electrical generation. Obviously, solar and wind produce power only when the sun shines or the wind blows. Power storage allows solar and wind power production to be balanced with demand. 
Tesla’s Chief Technology Officer
J. B. Straubel, Tesla’s CTO, talked batteries as keynote speaker at a recent energy storage symposium in Silicon Valley. He pointed out the rapid rate of improvement in lithium ion battery technologies and economics, which, I suppose, sounded like the second coming of Moore’s Law to a Silicon Valley audience. Rather than being awed by the magnitude of the giga-factory’s output, Straubel opined “Maybe this whole group isn’t thinking in large enough scale for the market size of energy storage”.
Strange as that may sound, Straubel has a point. Even 500,000 Teslas would be only 3.3% of 2014’s U.S. automobile market. Tesla is already selling well abroad, where petrol is much more expensive than in the U.S. and Green is an even bigger issue. Given a smaller model with a significantly lower price point and continued government inducements for zero emissions vehicles, 70% of 500,000 = 350,000 Teslas worldwide in 2017 might just be a bit easier to believe.
Keep in mind that, with Elon Musk’s firms, we are talking about people who design and build space ships, along with electric cars — rocket science is no barrier. And these folks do think big, like going to Mars. Straubel said that the plan for Tesla has always been “EVs for the mass market. We weren’t founded to make sports cars; we were founded to drive a revolution.”
Today (3 June 2014), Musk mentioned that he might do something dramatic with Tesla’s patents in order to jump start the global EV market — thinking millions of electric vehicles, rather than tens of thousands. 
Straubel also sits on Solar City’s board. Solar City, as you probably know, designs, installs and arranges financing for solar power generation systems for residential and commercial buildings. Solar City is a market leader, with over 12,000 installations here in Arizona alone (including my house). Still, solar is a small fraction of the U.S. energy production capacity. However, solar did account for 74% of all new U.S. electric power generation capacity installed in the first quarter of 2014.
With the new EPA restrictions on CO2 emissions from coal fired power plants that President Obama announced last week (2 June 2014), solar and wind power capacity can be expected to continue to grow. Quickly. And storage capacity — the ability to balance power production with demand — is necessary to make that capacity really useful. With Solar City’s position in the solar generation industry and access to the battery costs advantage the giga-factory provides, placing 30% of that capacity in U.S. domestic stationary storage applications isn’t so preposterous for 2017.
Enter Mr. Modi
Last month (on 16 May 2014), India elected a new government. Narenda Modi, who will lead that new government, has announced plans to provide solar-generated electricity to the roughly 400 million Indian people who don’t have access to electricity, and do so by 2019. The plan is for each home in India to have at least enough electric power to light two bulbs, operate a solar powered cooker and a television. Now imagine that those 400 million people not only want two light bulbs, they want to turn the lights on at night. That makes it easy to appreciate the necessity for electric power storage to make Mr. Modi’s plan viable.
400 million people, by the way, are more than the populations of the U.S. and Canada combined. As a rough guess, assume that these Indians live, on the average, four people to a home. That’s 100 million homes to be electrified over roughly five years. 100 million is a pretty big number, unless you are talking about dollars in Washington D.C.
Should Mr. Modi’s plan actually happen, that would be a lot of solar panels and a lot of stationary storage capacity. I don’t know where that stationary storage capacity would come from. But I do know who would have the low cost half of the world’s lithium ion battery capacity. 
For Smaller Manufacturers
It would be hard to overstate the rate of change in today’s global business climate. That change represents serious risk of business model disruption. It also offers opportunities on an incredible scale, as Elon Musk’s ventures illustrate.
Entrepreneurial initiative always involves risk. But, in this business climate, so does playing defense. My view is that managers should do some serious zoomed out thinking about their industry and its future potentials, then make a conscious choice.
Ostriches are in danger of extinction.
Thoughtful comments and experience reports are always appreciated.
… Chuck Harrington (Chuck@JeraSustainableDevelopment.com)
P.S: Contact me when your organization is ready to pursue Sustainability … CH
This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome. New blog posts are published on Wednesday evenings.
 Much of the specific information in this section is from: Steve LeVine, The Cold Logic Behind Elon Musk’s $5B Gigafactory Gamble , Quartz, http://qz.com/214093/tesla-elon-musk-5-billion-gigafactory-gamble/
 Information from J. B. Straubel’s remarks is from: http://www.greentechmedia.com/articles/read/Tesla-CTO-on-Energy-Storage-We-Should-All-Be-Thinking-Bigger
 Elon Musk’s comment at the Tesla Shareholders’ meeting from: Dana Hull, Five Takeaways from Tesla’s Shareholder Meeting, Silicon Beat, http://www.siliconbeat.com/2014/06/03/five-takeaways-from-teslas-shareholder-meeting/
 … solar did account for 74%… is from Mike Munsell, A PV Market First: Residential Solar in the U.S. beats Commercial Installations, Greentech Media, https://www.greentechmedia.com/articles/read/A-PV-Market-First-Residential-Solar-in-the-US-Exceeded-Commercial-Installa
 Information on Mr. Modi’s plan is from http://www.bloomberg.com/news/2014-05-19/modi-to-use-solar-to-bring-power-to-every-home-by-2019.html