Elon Musk’s revolution will be driven by his Gigafactory and the Model 3

“These hotcakes are selling like Mustangs!” was the joke du jour in 1964. By the time the eagerly anticipated Ford Mustang was officially made available to a car-hungry American public, thousands had already preordered the ‘chick magnet’ months in advance. This kind of hysteria over a motor vehicle hasn’t been seen in 50 years. That is, of course, until now.

Elon Musk may be on the verge of transforming the automobile industry for the 21st century and the public seem to sense it. Since Tesla revealed the first Model 3 prototype to the world last month – an affordable, electric car designed for the masses and expected to retail at about $35,000 (€ 31,000) – the company has already secured more than 325,000 deposits (and counting) for the vehicle. Most of these reservations were made within the first week it was announced Tesla would accept preorder reservations.

Demand clearly doesn’t appear to be a problem. Meeting it, however, may very well be.

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Tesla’s Model 3

Gigafactory 1

Much is riding on the successful completion of Gigafactory 1, a mega manufacturing facility currently in construction in Nevada designed with the sole purpose of achieving the economies of scale needed to make affordable lithium-ion batteries a reality. A high-risk venture indeed but, these days, a bet against Elon Musk will likely offer even worse odds.

One of Tesla’s aims as a company has always been the advancement of a global transition to sustainable transportation. However, the kind of tectonic cultural shift needed to change consumer hearts and minds, not to mention sufficiently undermine the influence of the existing automobile industry, compels Tesla to be able to provide enough electric vehicles almost to the point of over saturation.

The company aims to produce about 500,000 electric cars a year by the second half of this decade. This will only happen, however, if it can secure a reliable, cost-effective supply of the kind of rechargeable lithium ion batteries needed for their engines.

Battery production is set to begin in 2017 and Tesla hopes full capacity could be reached by 2020.

The Gigafactory 1 plant itself will be powered by renewable energy sources and is expected to achieve net zero energy. In addition, it has been designed so that almost all aspects of production can be carried out on site, potentially reducing costs, waste, and enhancing opportunities for innovation over the longer term.

With so much riding on achieving the efficient manufacture of lithium-ion batteries, several media reports have suggested Musk is currently ramping up efforts to secure new lithium supply sources beyond Tesla's existing provider, Panasonic.

Mining companies such as Pure Energy Minerals Ltd and Bacanora Minerals Ltd, as well as Albemarle Corporation, SQM, and FMC Corp, are among the names reportedly bidding for the contract, some of which have no prior experience mining for the silver-white alkali metal. But with global demand for the lightest alkali metal known to man expected to double by 2020, investing in a few Lithium Mining 101 crash courses is likely to be money well spent.

Three-stage process

"Gigafactory 1 is the third and final stage in Tesla's long term strategy to reduce the cost of batteries – the biggest cost for electric vehicles," explains Dave Tuttle, a Research Fellow in the Energy Institute at the University of Texas at Austin.

“There have been three key steps in Tesla’s strategy to bring affordable electric transportation ot the world: the first was to build a high performance long range car (the Tesla Roadster) proving the potential of the technology. Stage 2 was the Model S 4-door performance sedan. The recently available Model X SUV derivative of the Model S is sometimes called “stage 2.5”. The third stage is the successful roll out in 2017 or 2018 of the Model 3, a car starting at $35,000 (in the US market), that can do 0-60 mph in less than 6 seconds, with a 215 mile range on one battery charge.”

The Model 3 may be Tesla's attempt to reach a wider audience, but still at a class slightly higher than say the Volkswagen Beetle back in Germany in the 1930s. "They are trying to make the Model 3 a vehicle equivalent to something like a BMW 3 series," says Tuttle.

The Ford Muskang

While a BMW 3 Series might still be considered a luxury car for some, there are a number of interesting parallels between Musk's business model thus far and Henry Ford's approach to the Model T, the car that opened travel to middle-class American for the first time. Just under 11,000 units were sold at $825 each when Ford first launched the Model T in 1909. By the time he had completed construction on the Ford River Rouge manufacturing complex in Michigan in 1927 – the largest integrated factory in the world at the time – he was selling just under two million units a year retailing at $350.

“Although Elon Musk continually redefines what is possible, the strategy for the Gigafactory is too similar to Ford’s Rouge Factory to be mere coincidence,” says Tuttle.

“Starting with a modestly priced car, Ford continuously refined his model – principally made possible through the economies of scale he enjoyed from the construction of the Rouge Factory – then dropped the cost, refined some more, then dropped cost even further. In so doing, he eventually put the entire world on four wheels.”

Gigafactory 1 is not a new idea, therefore. But with Musk at the helm, his vision for the 21st-century electric car is likely to extend far beyond its current manufacturing base in Nevada. Even the addition of the number ‘1’ after the name ‘Gigafactory’ is relatively new and clearly suggests this is just beginning. At a Tesla company event held last year, Musk said more gigafactories would eventually be built elsewhere, but not necessarily by Tesla.

His commitment to an open-source philosophy for the technology underpinning Tesla Motors means anyone who wants to open up their own gigafactory will be able to access to the blueprints for the original design. Just recently, Bloomberg Business reported discussions on the subject between Musk and the German government had already taken place. Perhaps the introduction of some German engineering practices could lead to even greater efficiencies and lower costs in future designs of the Model 3. A Tesla Beetle might be closer than we think.