Tesla puts brakes on Gigafactory expansion plan, will focus on increasing capacity at existing facilities

Foreign media reported that Panasonic, Tesla's electric vehicle battery partner, has frozen plans to expand its facilities due to the high investment risk of the Gigafactory 1 expansion project. At the same time, both parties will strive to squeeze more production capacity from existing facilities. Elon Musk said that although Tesla missed its 2019 production capacity target, the company will seek multiple battery suppliers for the Shanghai factory.

Data map (from: Tesla official website)

As early as mid-2014, Tesla and Panasonic announced the Gigafactory 1 project, which is expected to invest $5 billion in Nevada, U.S. Although it has been put into operation, the factory is still under construction and is expected to be completed at some point in the next decade.

The batteries produced by this factory are not only used to supply Tesla electric vehicles, but also for Powerwall and Powerpack products (Tesla's energy storage system). Tesla owns the land and building property of Gigafactory 1, but has rented part of the space to Panasonic to place battery production equipment.

The two companies hope to increase the facility's production capacity by 50% by 2002. However, Nikkei Asian Review quoted people familiar with the matter as saying that the expansion project has been shelved. Although batteries were once a major production bottleneck for Tesla, the Gigafactory's annual production capacity is now sufficient for 500,000 vehicles.

What calmed the company down was the fact that Tesla's battery demand has not kept pace with the Gigafactory expansion compared to the company's previous roadmap (originally planned to achieve 54 GWh by 2020, currently about 35 GWh)

Tesla expects to produce a maximum of 400,000 vehicles in 2019, and the automaker has quietly dropped its goal of producing one million vehicles by 2020. Panasonic's Tesla battery manufacturing business, on the other hand, continues to post record quarterly losses. Part of the poor performance is blamed on delays in Model 3 production.

Tesla's early success in sales was helped by a federal tax incentive program, but now it has become a headache because the incentive has been cut in half since the beginning of 2019.

Although Tesla also cut its own prices to account for the drop in the tax credit from $7,500 to $3,750, the move angered many customers who were encouraged to place orders before the end of 2018. In addition, subsidies will be further reduced later this year.

Even so, Tesla will continue to cooperate with Panasonic. A company spokesperson said that although the current investment freeze seems bad, we will still make new investments in Gigafactory 1 as needed.

However, we believe that it is only necessary to improve production at existing facilities to exceed previous expectations. In the meantime, Panasonic appears to be waiting for demand to pick up, especially with production of the Model Y crossover expected to start in late 2020.

Another potential uncertainty is that after the new Shanghai factory starts construction, Tesla may seek other battery suppliers besides Panasonic, which Elon Musk confirmed last year. Panasonic is said to have suspended its investment plan in the Shanghai factory and only provides technical support and a small number of Gigafactory batteries.

Finally, there are signs that Tesla is looking to advance its own proprietary battery technology. Earlier this year, the automaker made an offer for US battery tech company Maxwell Technologies.

The deal, valued at about $218 million, could make it possible for Tesla to introduce Maxwell's ultracapacitor technology. Previously, the company counted General Motors and Geely as its customers.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.