LOS ANGELES --
Tesla Motors Inc.’s plan to build what co-founder Elon Musk bills as
the world’s largest battery factory could shake up the power industry
and trigger a bidding contest between states eager for the 6,500 jobs
the $5 billion investment could create.
The luxury electric-car maker announced yesterday
that it’s selling at least $1.6 billion of convertible notes to finance
the project and exploring locations in Texas, Nevada, Arizona and New
Mexico for a 10 million-square-foot facility. Tesla declined to comment
on whether any negotiations had begun. “This would rank as the most attractive industrial
project out there,” said Dennis Cuneo, president of DC Strategic
Advisors LLC and a former Toyota Motor Corp. executive who helped that
carmaker select manufacturing sites.
Tesla has dubbed the project the “gigafactory,” and it
would make Musk a force in both U.S. manufacturing and electric power.
The plant he envisions would have more capacity than any other to make
lithium-ion batteries. The facility may also help Tesla and
SolarCity Corp., a power company partly owned by Musk, achieve his goal
of becoming a big player in the power-storage industry.
“This has a huge impact beyond Tesla,” said Harley
Shaiken, a labor economist at the University of California, Berkeley.
“It gives enormous legitimacy to battery production and the future of
the electric car because that lies in the battery. It’s high stakes, high technology.”
Tesla plans an investment of $4 billion to $5 billion
by 2020 and will fund about $2 billion of the total, the Palo Alto,
California-based company said in a presentation on its website. The
convertible bond offering could grow to $1.84 billion, according to a
separate statement.
Power Storage
The plant is key to Tesla becoming a mass-market automaker capable of producing 500,000 or moreelectric vehicles a year from a projected 35,000 this year, Musk has said. Its cheapest vehicle, the Model S, starts at $71,000.
The 42-year-old billionaire could also get closer to
achieving his goal of being a leader in the power-storage industry in
the U.S., as utility customers continue to turn to batteries and solar
panels to reduce electricity bills. The scale of production at the planned factory would
be so immense that Tesla estimates it would drive down lithium-ion
battery costs by at least 30 percent.
That possibility for batteries capable of storing
large amounts of electricity from wind, solar and other renewable
sources is what makes the project appealing, said James Albertine, an
equity analyst with Stifel Nicolaus & Co., who rates Tesla a hold.
Tesla rose 2.5 percent to $259.30 at 9:55 a.m. New York time. “On the vehicle side, I am pretty steadfast in my
skepticism at $200 or above. I’m a bear,” Albertine said. “My bull case
is in the case that the cars become ancillary.”
‘Robust Competition’
Tesla, he said, would essentially become a power
storage company. That would benefit SolarCity Corp., which is partly
owned by Musk and may be a partner in the factory. Musk said last week that Panasonic Corp. -- now the
biggest supplier of lithium-ion cells used in Tesla’s batteries -- may
also be involved. Panasonic’s participation is “not 100 percent
confirmed,” he said in a Bloomberg Television interview.
While Tesla identified only four states as potential
hosts, “it’s going to draw interest from many others,” Cuneo said. He
predicted a “robust competition” where “incentives are probably going to
be a big factor.”
A slide-show on the Tesla website includes a rendering
of the facility in a desert landscape, with adjacent solar and wind
farms to supply electricity. Construction could begin as early as this
year, according to the presentation.
“Without question there will be a very intense bidding
war -- $5 billion is a breathtaking figure,” Shaiken said. States want
the jobs and “also the research and development related to this. That’s
going to be very significant.”
Up Sevenfold
Tesla announced the fundraising and plans for the
gigafactory after the shares closed at their highest since the company’s
initial public offering in June 2010. They’ve gone up sevenfold in the
past year.
The company will offer $800 million of notes due 2019
and $800 million due 2021. The company plans to grant the underwriters a
30-day option to purchase as much as an additional $120 million due
2019, and an additional $120 million, due 2021, bringing the offering to
as much as $1.84 billion. The coupon, conversion rate and other terms
of the notes haven’t been determined, according to the statement. Goldman Sachs Group Inc., Morgan Stanley, JPMorgan
Chase & Co. and Deutsche Bank AG are jointly managing the offering,
the company said.
Previous Surge
Proceeds from the note sale will also be used to
produce a “Gen III” vehicle that’s cheaper than the Model S sedan. The
offering will also accelerate growth of Tesla’s business in the U.S. and
overseas, as the company prepares to enter China next month.
The fundraising move echoes Tesla’s sale of $1.08
billion of new shares and notes in May 2013 amid a previous surge in the
company’s shares. “Obviously, they understand the need to strike while
the iron is hot,” said Alan Baum, an analyst at Baum & Associates in
West Bloomfield, Michigan, who tracks alternative-powertrain
technologies. “What they are doing is taking advantage of being looked
at as a different kind of company.”
Copyright 2014 Bloomberg
http://www.renewableenergyworld.com/rea/news/article/2014/02/musks-5-billion-tesla-gigafactory-plan-may-unleash-bidding-war
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