Tesla Model 3, Gigafactories, and Kidman

June 8, 2018

Tesla held their annual shareholder meeting this week and provided some key updates on their operation.  Let’s take a look at some of the highlights:

Model 3: Probably the most significant reason why the stock popped after the meeting is the company’s update of Model 3 production.  As has happened with the company in the past, they have routinely missed production targets in their effort to produce a truly mass market electric vehicle. However, one significant milestone for the company has always been producing 5,000 model 3’s per week, and it seems that they may finally be close to achieving that.  CEO Elon Musk stated that he believes they can get to that level by the end of June. Current production stands at less than 3,000 per week, so he clearly still has a lot of ground to cover before he reaches the target.  Furthermore, to put the number into perspective, it would imply a run rate of ~250,000 model 3’s produced per year. Reaching this level would take them a step closer to becoming a serious automaker with the next major goal of producing 1m vehicles per year beginning in 2020.  

Gigafactories: During the meeting, they also reiterated their plan to open 10-12 more gigafactories to help fuel their EV ambitions.  Given that the first one cost $5b (with the company shelling out $2b themselves), we can see that Mr. Musks goals are certainly capital intensive.  That being said, given the company’s two pronged approach to the clean energy future (EVs and energy storage/solar panel combo), producing everything in house at rock bottom operating costs is key to the strategy.  

Focusing more on the shorter term, the company said they have two gigafactories planned with one in Shanghai.  At the same time, they have remained firm on the fact that they do not need to raise further capital. So it is unclear where the money will come from.  They believe they will be cashflow positive once they reach their model 3 production goals, but that likely won’t come close to covering the cash needed.  What’s more likely is some form of partnership. On the first gigafactory, the company partnered with one of their suppliers, Panasonic. Combining that with the fact that Chinese regulations often call for partnerships, JVs, or other tie ups, and the country’s grand EV ambitions, it seems likely that they will not find it too difficult to find a partner.

Kidman Resources:  While the company didn’t touch on this during the meeting, the gigafactory and model 3 production updates made us think about their recent deal with Kidman Resources.  It’s no secret that much of the lithium produced around the world is being shipped to China, especially that coming out of Australia. So it makes sense that Tesla signed a lithium supply deal with Kidman and their Tier-1 lithium project while reiterating their commitment to the China gigafactory.  While we won’t know for sure, it seems to us that the lithium hydroxide produced by Kidman will go to the Shanghai factory for battery production. The first Tesla gigafactory took 3-4 years to come online. Comparing that to Kidman’s production timeline of 2020/2021, it lines up on that front as well.

Stay tuned via twitter and email to get our analysis as it hits the tape!