Shanghai Is Now Part of Tesla's Innovative Battery Promise

On Sunday, Elon Musk tweeted that Tesla Inc TSLA’s next factory will be Shanghai with the goal of assembling 10,000 giant batteries a year like its California plant. Shanghai is already the place where Tesla has its largest EV factory that not only supplies the Chinese market but also exports vehicles to Europe. With its Berlin factory, the EV pioneer has found it much harder to build its plant as quickly as in Shanghai. 

Megapacks

A Megapack is essentially a very large battery that stores energy and prevents outages. It plays in important role in stabilizing the power grid as it enables operators to move extra capacity and ensure that power is stored stored and used when demand is higher or during outages. According to Tesla, Megapack can power 3,600 homes for one hour. They are the size of an international shipping container.

China’s Fast Growing Demand For Batteries

As the world moves away from fossil fuels to renewable energy sources like wind and solar power, the ability to store electricity when it isn’t in demand is critical. In China, the need for grid-storage batteries is particularly strong as many provinces now require new solar and wind farms to have enough batteries to hold 10 to 20 percent of the electricity they generate.

Due to outages in 2021 when demand overwhelmed supply and caused multiple unfortunate events, the country has been liberalizing its power markets. As factories were closed, office towers evacuated before elevators lost power, workers of a chemical factory were even injured due to sudden loss of electricity that is required for the safety of their processes, China took action to encourage smoother use of power throughout the day, such as by allowing prices to vary. For example, they are much more affordable when the sun is shinning and the wind is blowing intensely, reducing the risk of blackouts. Together, the price dynamics and regulations that encourage renewable energy installations resulted in a fast-growing need for batteries. 

China is already producing the majority of the world’s rechargeable batteries and it is the leader in chemical processing that is needed to make their components. With a Shanghai facility, Tesla is coming to the source of manufacturing almost all of the world’s lithium-iron-phosphate compounds that are less expensive to make than the previously used materials in rechargeable batteries such as cobalt whose mining in Africa, the world’s leading source of the mineral, has been put into question by human rights advocates. As a reminder, Musk promised dramatic changes in how batteries for EVs will be made. 

Timeline

Tesla will be starting construction this year, presumably during the third quarter with production aimed for the second half of next year, according to the Chinese state media outlet Xinhua who reported on the signing ceremony.

All in all, Tesla continues its path towards fulfilling Musk’s battery promise in terms of cost and performance, one that is considered by many as crucial in fueling the EV pioneer to hit its 2030 targets and thrive in a field that is getting more and more crowded. 

DISCLAIMER: This content is for informational purposes only. It is not intended as investing advice.