Tesla Motors, Inc. (NASDAQ:TSLA): Gigafactory is Creating Overnight Millionaires

Tesla_MotorsTesla Motors, Inc. (NASDAQ:TSLA) is getting ready to launch its first SUV at the end of September. The company is also moving ahead with its planned battery “Gigafactory “ and an “affordable” (if you have a spare $35,000) model to be unveiled next spring. And that’s just what’s in store for the next few months.

Meanwhile, Tesla has just released a new battery as part of its “Roadster 3.0” upgrade kit, allowing current owners to “pimp” their Tesla Roadster—the original Tesla model based on the Lotus Elise. The upgrade is not for everyone, given its $29,000 price tag. But as many tuners of conventionally powered cars know, worthwhile modifications don’t come cheap.

The battery replacement kit offers greater capacity while improving the electronic power module that together add some 35% more range to the Roadster, whose original range is an optimistic 240 miles or thereabouts. With the upgrade pack, the Tesla can take its lucky driver 320 miles on a single charge. About 2,000 out of the 2,500 Roadsters built from 2008 to 2012 cars are the “2.0” or “2.5” versions, compatible with the new battery.

The new battery upgrade fits snugly. At its core is a new cell having 31% higher density than the cell found in the original Roadster—the new cell is now integrated with the latest Model S and Model X. The new battery boasts 40% higher capacity, going from 53 to about 74 kWh, gaining only a few pounds of extra weight.

The upgrade kit also includes bodywork to reduce aerodynamic drag, which, at a speed of 40 mph or more, accounts for the largest share of energy consumption from the battery. Judging by some of the messages in a thread on the Tesla Motors Club Forum, the owners seem excited.

Tesla Gigafactory is Creating Overnight Millionaires in This Industry

Investors should be excited as well. The production of replacement batteries has begun and Tesla’s cars are now sold in over 30 countries. More importantly, the new upgrade battery reflects how adept Tesla itself has become at engineering ever more powerful and efficient batteries, which are not just for the automobile market.

Tesla Motors recently unveiled its new and unprecedented line of rechargeable batteries for residential and commercial use. Elon Musk, CEO and founder of Tesla, has set a very ambitious goal with regard to the new batteries: offer consumers an alternative to fossil fuels.

But, instead of preaching a more modest or austere existence relying on cutting energy consumption, as many environmentalist preach, Musk has made it possible to maintain a luxurious lifestyle by delivering systems capable of generating and storing energy produced from renewable sources such as wind and the sun. In other words, he offers environmentalism that makes complete business sense.

You don’t have to be green to note how much of the “green” Musk will be collecting. Just take a look at Tesla stock. TSLA shares have soared since the company’s initial public offering in 2011.

Tesla_Motors_Chart

Chart courtesy of www.StockCharts.com

Whether you like electric cars or not or whether you care if the 120 volts of electricity in your house are generated using coal or solar power, Tesla and Elon Musk are generating their own huge buzz on all sectors of the economy. It’s not an exaggeration to suggest that Tesla’s technology will forever change the very image of society.

Moreover, the cost of such momentous progress is rather affordable—which makes it realistic. The low cost of new domestic batteries, known as Powerwall, $3,000 for the 7kWh model and $3,500 for the 10kWh, along with their scalability, promises to be a great commercial success and attract the market at a fast pace.

If there are limitations to the technology, they are related to raw materials. Will lithium and graphite suffice to improve the latest Lithium-ion (Li-ion) batteries? Or will new materials such as magnesium and aluminum be added to help speed up the Powerwall’s charging times and improve storage capacity?

For now, the practical approach from the investment angle is to consider the availability of raw materials that Musk needs to propel his energy revolution. Demand for lithium, graphite and Tesla’s battery production volumes will heavily influence cobalt (which is currently used). Although Tesla has not officially confirmed that the new residential battery systems will use the same technology as those used for cars, it is taken for granted that it will. Therefore, they will contain lithium, cobalt and graphite.

Each Powerwall unit needs about 30 lbs of synthetic graphite or 30 lbs of the spherical graphite (extracted from 90 lbs of natural flake graphite which is cheaper than synthetic), as well as 30 lbs of lithium hydroxide. For commercial applications, Tesla offers the “Powerpack,” featuring 10 times as much graphite and lithium (300 lbs of graphite and 300 kilograms of lithium). In other words, more lithium and graphite are needed to power the Tesla Model S.

Should demand for new batteries take off as expected, these metals shall reward investors even if it gives Musk an extra headache or two due to the potential volatility of commodity prices. Then there is the issue of processing the raw materials.

How Do You Profit From Tesla’s Gigafactory?

Even if the reserves of lithium, cobalt, and graphite are sufficient to meet demand, processing capacity remains limited because it requires a specific expertise to make these raw metals used in the batteries. Therefore, the best raw material suppliers are not only those who have access to the finest minerals; rather, they are those able to process them to meet the strictest purity standards.

The market now awaits Tesla’s announcements concerning its supply contracts for the considerable quantities of lithium, cobalt, and graphite that it needs to make batteries for cars, houses, and businesses. The Gigafactory will generate Giga-contracts with miners.

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