Tesla’s Next Move
On July 24th, 2015 Mitsubishi Motors North America announced they were closing their sole US plant in Normal, IL and were seeking a buyer. Built in 1988 through a partnership between Chrysler and Mitsubishi, the factory was said to have 1.9 million square feet (Expanded in 2003) of space and received $274 in incentives from Illinois. The location is a huge advantage for Mitsubishi, as it was invisioned to produce vehicles destine to stay in the US. This plant never truly reached its full capacity (upwards of 240,000),but in the mid 90’s to early 2000’s production fluctuated around 200,000 vehicles.
The closure of the plant comes after a decade of difficult times. In the past few years the fate of Mitsubishi’s factory has been weary- due to one of their largest exports, Russia, having economic troubles- and the company’s lack of investment in automotive advancement and development (Just take a look at their product line-up).
So what does this have to do with Tesla?
Mitsubishi’s factory is very large. At 2.4 million square feet, the factory is one of the nations largest automotive factories. The Tesla Factory in California is more than double the size(5.5 million square feet) of the Mitsubishi factory and has the capacity for approximately 500,000 vehicles. So as Tesla’s production increases, they will need to have more factories to meet demand. This plant would be a perfect addition to their capacity.
Why would Tesla need another factory if they are only using 10% of there capacity?
Tesla opens their first Gigafactory in April next year they will probably produce more than 100,000 vehicles and grow to meet their capacity by mid 2019. In order for Tesla to continue growing and meet the demand of their future a mass market electric vehicle, Tesla will need to add production capacity. (To see detailed production estimates- if Tesla decides to expand very agressively- see my previous report here)
In 2010, to minimize risk and cost Tesla bought their current factory used from Toyota (Built in 1962). Clearly, that plan was extremely effective as Tesla bought an automotive plant for significantly less (billions) than a new construction. The plant will continue to allow them to expand till the end of the decade. While it may seem that Tesla is now interested in building its own factories, see Gigafactory 1, Tesla definitely sees the benefits of buying a used one (available workforce, significantly lower cost, and the low amount of time to restart production). Studies from the Tax Foundation find that the cost of doing capital intensive manufacturing(auto manufacturing) is significantly lower in Illinois than it is in Nevada (Gigafactory 1) and California (Fremont Tesla Plant).*
Still wonder why I believe that Tesla is going to need a new factory soon? (See why here).
It would take roughly 2 years to Tesla to turn the Mitsubishi factory into a Tesla factory (Timeline from last conversion). Mitsubishi is actively looking for a buyer and is said to sell the factory for as little as $15 million (Considering they put $100 million into it in 2012). As of now, no one at Tesla has been contacted.
While buying the factory right now may seem a bit early, which it is, how often does a 2.4 million square foot factory go on sale?
*Assuming that Tesla is still considered a “new firm”
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