If you recall earlier this year we were informed that Giga Shanghai would be expanding:
"Tesla plans to start work on a new plant in Shanghai as soon as next month as part of a plan
to more than double production capacity in China to meet growing demand for its cars in the country
and export markets, two people familiar with the matter told Reuters."
But now in a recent Reuters article we are receiving further information on the
planned facility. Tesla sent a letter to Reuters with further information.
"The company will build a new plant on nearby land in the same area,
which is poised to add an annual capacity of 450,000 cars, including Model 3s and Model Ys,
becoming "the world's largest vehicle export hub", the letter said."
In the initial article back in February we were told:
"Once the new plant is fully operational, Tesla will have the capacity to produce up to 2 million
cars per year at its expanded Shanghai facility, the company's main export hub,
according to the people, who asked not to be identified in discussing still-private plans."
So to assume the current fabs are capable of a one million a year run rate sometime this year,
we would expect that this new fab is probably not far off a million a year capacity too.
Yet we are being told 450,000 units from this new facility.
Personally I believe the original mention of 2 million units is a more likely story.
Everyone makes it out to
sound like it's Tesla expanding in China, which it is somewhat. But as we very well know, EVs, well
they are all constrained by batteries. There are no sounds of any plans of Tesla setting up any
4680 lines in China, or any other in-house cell production. Therefore there must be a
cell investment and expansion somewhere, or else Tesla couldn't increase their
production enough to warrant a new facility. Right of course, well Tesla China is a company
that monopsonizes as much of what CATL can supply. So what is really happening here,
is Tesla have said to CATL, we can still use more cells, a lot more, if you can make them. CATL
want to grow and expand, and they have a gigantic customer, who can't get enough of their product.
It takes CATL a lot longer to ramp up cell production,
than it does Tesla vehicle production. Due to to the fact that Tesla can produce cars
at something like 3 or 4 times volume production. But it does sound like at
this rate these existing factories in Shanghai will reach their capacity soon.
Therefore CATL started a new factory up the road from Giga Shanghai. It was announced in June 2021,
and supposedly as early as January they were already ramped up to 60%
target capacity. The target capacity was rumored to be as high as 80 GWh a year.
Now some people think this is absolutely exceptional to go from dirt to production
in the space of about 1/2 a year, but those people are misinformed,
this was not a newly constructed fab, it was an existing one that has been retrofitted.
Hence how they were able to get it operational so fast.
It is this factory that is responsible for seeing China making such large leaps in production
late last year and at the start of this year. 80 GWh/yr is a lot. If each standard range vehicle is
only using a 60 kWh battery, then that's enough cells for 1.3 million vehicles a year. However,
this was in addition to what Shanghai was running at previously. However, Fremont is also using LFP
batteries too, and megapacks are using LFP, so some extra must now be allocated to those.
But still enough cells for 1.3 million vehicles, locally made, well that's still quite a few.
Plus all the LG 2170 cells for Long Range and Performance on top of that.
Personally I think Tesla's Shanghai current
facilities, especially if phase 3 is complete, then I think those two fabs are capable of around
1.3 million alone. But just in case we do have this new fab, that Tesla are claiming will only
have an additional capacity of 450,000. Now the thing is if this new fab is also using LFP cells,
then I am not sure if they will be using structural packs. Perhaps Tesla can redesign the
cell packs to become structural with CATL's LFP. As you would expect this new factory to be using
all the latest manufacturing techniques, namely cell to vehicle integration and front castings.
We should be expecting cars rolling off this line in perhaps just over a year's time.
Well that would also coincide with CATL's latest plant. That's right, around the
same time Tesla announced their new Shanghai facility, CATL also announced another new one,
except this one is practically next door to Tesla's Giga Shanghai, coincidence?
I believe this facility will be the start of the research facility for Tesla's own in-house
LFP battery, and partnering with CATL to create the best LFP battery cell they can use in their
vehicles. And perhaps they will also produce cells there too. What if it's another 80 GWh a year?
Alright it's possible Tesla aren't getting 100% of these cells, as CATL do have other customers,
on the other hand Tesla are literally up the road, so I would say
they are taking a large portion of those cells. I mean if this new CATL factory was going to be
that size, then Tesla might have something close to 200 GWh a year of LFP cells from CATL. What if,
the existing fabs can produce closer to 1.5 million run rate, and this new one will be
closer to a million, and we end up getting 2.5 million vehicles a year from China.
I mean this is what is happening, CATL are happy to keep expanding and make as many cells as they
can. Tesla still have plenty of customers to cater to, and are happy to keep expanding their vehicle
production too. It's a synergistic partnership, which will keep both parties expanding.
In the letter it also read that: "The company
will build a new plant on nearby land in the same area, which is poised to add an annual capacity
of 450,000 cars, including Model 3s and Model Ys, becoming the world's largest vehicle export hub"
They say add to annual capacity, including Model 3s and Ys.
But what other vehicles are there? They wont start producing the S and X there,
the Cybertruck is highly unlikely too, the Semi and Roadster I wouldn't have
thought likely either. There is one other car that is meant to be revealed soon,
and that is the dedicated Robotaxi. However, I find that very unlikely, I almost guarantee it
will be built a new fab in Austin. But not until Tesla have their own in-house LFP cell production.
So yea, it basically does leave just the 3 and Y, I find it very unlikely it will be
the compact either, as Elon said they are not currently working on that. I don't think Elon
would blatantly lie, sandbag - sure, get timelines wrong - constantly, but not lie.
Tesla want each factory to be better than the last though,
and without 4680 cells, I see this as a challenge. It will be a production line
designed around LFP battery packs. I think this new CATL fab they are currently constructing
may end up making LFP structural packs, perhaps with a new cell design too.
This will then mean this new Tesla facility can perhaps make structural Model 3s and Model Ys
with LFP cells. Perhaps they will be medium range vehicles. Remember Model 3 is currently
not made is Europe either, so they are still exporting Model 3s, and its a very popular
vehicle in Europe. So that would be my best guess, but it is just a guess at this stage.
So in reality all that is new here, in regards
to the new facility, is that it has a capacity of 450,000 units a year, which we had not previously
been told, it had been mentioned before at a consolidated 2 million units a year. Of course
I think we can all agree that this 450,000 units a year from the new facility, has sandbagged written
all over it. It is good to hear Tesla talking more about this new factory though, and I expect them
to break ground this month or next. I really think that partnering with CATL, then Tesla can hit a
2 million a year run rate in China alone. Except all these fabs are going to be ready within about
a year, and perhaps take the rest of the year to ramp up. Meaning that this 2 million a year run
rate, may not be too far off the end of 2023. When we add the potential of what the other 3 factories
could be doing around that time, then we might not be too far off 4 million a year run rate,
by the start of about 2024. You know assuming 4680 production ramp went successfully.
Just imagine about 4 times the output in less than 2 years, not to mention the majority of
the economies of scale being realized at around that production rate, resulting
in not just about 4 times as much revenue, but probably something like 6 times as much
profit. Could that be about 20 billion in earnings for Q1 2024? Well if it does,
then at today's stock price Tesla would be trading at a p/e ratio of about 10.