Tesla Rejects California as Gigafactory Site

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Headquartered in Palo Alto, California, Tesla Motors, Inc. (TSLA) has eliminated California from the list of potential locations for its Gigafactory, according to sources. The reason behind the decision is not known. However, higher manufacturing costs in the region, specifically real estate prices, and politics are the probable grounds of rejection.

The Government of California offered many locations to Tesla as the potential construction site for the Gigafactory. However, Tesla rejected the proposal.

Tesla’s total sales in California comprised more than one-third of the company’s total global sales last year. Moreover, California’s pollution-control policies help the automaker to generate substantial revenues from the region.

Tesla plans to construct Gigafactory to produce lithium ion batteries in collaboration with various partners. The electric carmaker’s Japanese battery pack supplier, Panasonic Corporation (PCRFY), is rumored to be one of the partners. The automaker expects the factory to provide economies of scale and reduce production costs based on innovative manufacturing techniques, reduced logistic wastes, optimization of co-located processes and lower overhead costs.

Tesla is considering 500-acre to 1,000-acre sites in Nevada, Arizona, New Mexico and Texas for the construction of the factory, which will employ around 6,500 workers. The automaker intends to initiate construction this year and complete the factory by 2017. The Gigafactory will supply lithium-ion batteries to Tesla's Fremont, Calif., assembly plant.

By 2020, Tesla expects the annual lithium ion battery production at the Gigafactory to exceed the total global production in 2013. The factory is expected to produce enough battery packs to build around 500,000 electric cars by 2020. Also, by the end of the first year of operations, per kWh cost of production of battery packs is expected to be reduced by over 30%.

Tesla currently carries a Zacks Rank #2 (Buy). Some other automobile stocks worth considering are Tata Motors Limited (TTM) and Toyota Motor Corporation (TM). Both the stocks carry a Zacks Rank #1 (Strong Buy).

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