Tesla Motors, Inc. (TSLA) is considering southern Dallas County in Texas as a possible location for the planned $5 billion ‘Gigafactory’ construction, according to media reports. If the plan matures, Tesla will create significant employment opportunities in the area as the Gigafactory will employ around 6,500 heads, leading to considerable economic development.
At present, Tesla has a gallery at NorthPark Center in Dallas where model S vehicles are displayed and customers can avail information about electric cars. Apart from Texas, Tesla is also considering 500-acre to 1,000-acre areas in Nevada, Arizona, California and New Mexico for the battery factory construction site.
Notably, the automaker plans to initiate the construction work this year and expects to complete the factory by 2017. Moreover, Tesla is planning to break ground for the Gigafactory at three sites instead of two. While Tesla initially had plans to construct only one Gigafactory, the company has now decided to break ground in three sites to avoid any delay in construction.
The Gigafactory will be manufacturing lithium-ion batteries for Tesla’s vehicles in collaboration with various partners. Tesla expects the factory to provide economies of scale and reduce production costs by implementing innovative manufacturing techniques, reducing logistic wastes, optimizing co-located processes and lowering overhead costs.
By 2020, Tesla expects the annual lithium-ion battery production at the Gigafactory to exceed the global production recorded in 2013. The factory is likely to produce enough battery packs to allow the construction of around 500,000 electric cars by 2020. Also, by the end of the first year of manufacture of the mass market vehicle, the per kWh cost of production of battery packs is expected to be reduced by over 30%.
Separately, a new California legislation has been passed which includes some tax incentives expected to benefit Tesla, if it chooses to construct its Gigafactory in the state. The legislation provides a $420 million tax credit to aerospace contractor Lockheed Martin Corporation (LMT). While the benefits to be provided to Tesla are not clear yet, it is expected that the automaker will be able to avail similar tax credits on battery manufacturing as Lockheed Martin.
Tesla currently carries a Zacks Rank #3 (Hold). Some better-ranked automobile stocks worth considering are China Automotive Systems Inc. (CAAS) and Meritor, Inc. (MTOR), which sport a Zacks Rank #1 (Strong Buy).
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