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On Wednesday evening, Tesla (NASDAQ:TSLA) finally announced the plan for its highly-anticipated gigafactory. According to the announcement, the new factory will be able to provide batteries for 500,000 cars annually by 2020, and it will be funded by both Tesla and its partners. This looks like a highly ambitious plan, as many analysts were predicting Tesla to produce about 300,000 vehicles by 2020 rather than the announced 500,000.

According to Tesla's announced figures, the global battery production rose from 21 GWh per year to 34 GWh per year between 2010 and 2013. Most of the growth comes from Asia where there is also strong demand. Apart from the demand, it is costly to ship those batteries in the US for car production. Tesla plans to produce its own batteries in order to reduce competition for the limited supply of batteries, accelerate the global growth in battery production and be able to ship batteries from place of production to the car factory as cheaply as possible. Any savings that will be seen between now and then will be passed on to investors and consumers of Tesla.

By 2017, Tesla plans on reducing battery pack cost per kWh by 30%, and this is just a start for the company. By 2020, Tesla expects to reach a gigafactory cell output of 35 GWh per year and a gigafactory pack output of 50 GWh per year. As I mentioned above, the current global battery production is around 34 GWh, which means Tesla's gigafactory alone will be able to double the global battery production within a few years even if no other battery producer increases their production during this period.

According to Tesla's gigafactory process flow, once a battery gets shipped to the Tesla factory in Fremont and gets installed in a Tesla car, the story doesn't end there. A Tesla's battery will probably outlive the car itself and once the car is no longer in use, the battery will be taken out and recycled. This will provide raw materials such as cathode, aluminum foil, separator, anode and copper foil. In the long term, this should reduce battery production costs even further.

Tesla currently has a shortlist of 4 states to build the gigafactory and it will decide on one of these states soon. These four states are New Mexico, Nevada, Arizona and Texas. These states are mostly sunny, and the company can maximize the utility of its solar panels in any of these locations. Apart from Texas, the other three states have mountains, which can provide wind power for the wind turbines if Tesla were to pick one of those states. Also, keep in mind that most of these states have low tax structure and very little union culture (if any), so these will be advantageous points for the company.

Tesla will issue $1.6 billion of convertible debt and pay $2.0 billion for the factory, whereas the partners will jointly pay about $2 billion to $3 billion, bringing the total cost to $4 billion to $5 billion. The site selection will be completed within a few months followed by initial project design, partner discussions and zoning to be completed before the end of the year. The facility construction will start around summer and take about one and half years. After that, another year will be spent for equipment installation, and the factory will be ready for production launch and ramp up by early 2017. We know that Tesla usually passes its milestones and rarely falls behind unless there is a supply issue, and this factory's goal is to solve one of the biggest supply issues so that the company can move forward with its other milestones and plans.

We currently don't know who Tesla's partners will be in this project, and I am sure that the company will be providing more details and information on this in the coming months. By the next earnings call, I wouldn't be surprised to hear that the site for the factory is picked, the partners are picked and the construction is almost ready to start.

The Model E (or the Third-Gen) will be smaller and lighter in weight than the Model S, and it will have a smaller range. Furthermore, there will be advancements in battery technology between now and the launch of Model E. This is why the Model E will probably require a much smaller battery than Model S does. By increasing efficiency of each battery, Tesla can increase its production capacity even if it keeps the number of cells constant over the years. I am sure there will also be some sort of partnership between Tesla and SolarCity (NASDAQ:SCTY) in order to ensure that some of the recycled batteries are being put to use outside of the car industry.

So far, Tesla has achieved a lot of things people thought were impossible a few years ago. The company continues to make great progress, and it keeps moving quickly. One of the biggest strengths of Tesla is the company's ability to make decisions quickly and implement those decisions quickly. Larger car companies don't enjoy this benefit as they tend to have several layers of bureaucracy.

As this was discussed before, Tesla's current valuation is pretty high, and it reflects a lot of future success. On the other hand, if you believe that Tesla will continue to deliver strong results for years to come, it may be a good idea to hold onto your shares for the time being. I was skeptical of Tesla for a long time, but now I am learning that doubting Elon Musk was a big mistake. The guy actually goes out there and gets things done while doubters turn into believers each day. Does that mean I will buy shares of Tesla tomorrow? Probably not, but I will be on the sidelines and waiting for an opportunity. Meanwhile, I will enjoy the profits of my call-put straddle.

Disclosure: I'm long calls and puts of TSLA, and I may close this position at any time. I am long SCTY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Tesla's Gigafactory May Turn More Doubters Into Believers