Musk at Utilities Commission Gives Credence To Gigafactory Power Play

Maybe Morgan Stanley was on to something.

A day after Tesla, $TSLA, reveals details of its Gigafactory in a sparse blog post, CEO Elon Musk speaks at the California Public Utilities Commission. The topic of his planned talk isn’t disrupting the power industry, as the Morgan Stanley analyst who slapped a $320 target on Tesla’s share price believes will be the fate of the new battery manufacturing facility. But it may as well be. Musk is on a panel with cousin Lyndon Rive, CEO of residential solar panel installer SolarCity, $SCTY. Musk is scheduled to answer 45-minutes of audience questions, undoubtedly including how the batteries produced at the Gigafactory could not only power Tesla’s vehicles, but also store energy from solar cells and transform the $360 Billion-a-year power industry.

A live webcast of the event, which starts at 1:30p.m. West Coast time, is available here.

$TSLA $SCTY Rive, Musk joint event tmrw after Mkt close. somebody live tweet? if in SF go ask a public question.

— Ray (@rayinla) Feb. 26 at 08:09 PM

In the company’s Thursday post, released after the close, Tesla said it plans for the Gigafactory to accelerate cost reductions in lithium ion batteries by unifying strategic battery manufacturers. It did not identify any partners, though the assumption is that current battery supplier Panasonic, $PC, will be a major player. Tesla has a deal with the Japanese company to buy a minimum of 1.8 billion lithium-ion battery cells from 2014 to 2017, according to Tesla’s 10K, released yesterday. Japanese newspaper Nikkei reported earlier this week that Panasonic may invest $1 billion in the factory.

Tesla also said that it expects the Gigafactory to produce more lithium ion batteries in 2020 than were manufactured worldwide last year.

In its 10K, Tesla said it has not yet formalized the partnerships for the Gigafactory or finalized the location of the planned 10 Million square foot factory. In slides accompanying the blog post, Tesla said it is considering locales in Nevada, Arizona, New Mexico and Texas.Screen Shot 2014-02-27 at 12.50.18 AM

In addition to a battery manufacturer — likely Panasonic — Tesla made clear that it wants to partner with raw materials suppliers capable of providing the cathode, anode and foil parts of the battery. The factory would employ 6,500 people and include a battery recycling plant.

Tesla plans, along with its partners, to invest between $4 Billion and $5 Billion on the facility through 2020. Tesla will directly invest $2 Billion. It expects the Gigafactory to launch production in 2017.

Tesla will finance the investment with debt. Tesla announced a $1.6 Billion convertible bond offering yesterday. Half of the notes are due 2019. The other half are due in 2021. The bond underwriters also will receive a 30-day option to purchase up to an additional $120 Million in convertible senior notes due 2021.

The convertible notes can be exchanged for cash or stock. Tesla plans to prevent dilution of the stock by entering into hedge and warrant transactions.

Goldman Sachs, Morgan Stanley, J.P. Morgan and Deutsche Bank are acting as joint book-running managers for the offering, according to the press release.

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