(Editors' Note: This article covers a micro-cap stock. Please be aware of the risks associated with these stocks.)
The news about the Giga factory hit every possible financial news channel and is now the next big catalyst for Tesla. Here is a summary of the multi-billion project and its significance:
- It should help Tesla meet the projected high demand for its Model S, the forthcoming Model X SUV and the "GEN III," by supplying the company with enough lithium-ion batteries
- Its estimated cost is $5B
- Construction is planned to start as soon as this year, and it should be ready for exploitation by 2017
- The battery plant will allow Tesla to sell half a million vehicles a year by 2020
- Once built, it will employ 6,500 people
On Wednesday, February 26 the company also announced an offering of $1.6B aggregate principal amount of convertible senior notes, in an underwriting, led by Morgan Stanley and other leading investment banks. Half of the amount is due 2019 and the other half is due two years later. Panasonic is said to also be involved in the deal, ready to invest more than $1 billion of its own money in the factory. Petty cash, considering the $1.1 billion that Elon Musk made on Tuesday, February 25 on his investments in Tesla (NASDAQ:TSLA) and SolarCity (NASDAQ:SCTY)
The rest is, more or less, a mystery.
And while everyone else is pondering over the location of the Giga factory (Arizona, New Mexico and Texas most likely) and the fair value of the company after the factory is built, I am trying to explore the question: Who might benefit the most from the battery factory.
1. Tesla Motors, Inc.
Obviously, Musk's company is a winner. It finished 14% higher on Tuesday, February 25, closing at $247.95 and also added 2% the next day. Adam Jonas of Morgan Stanley upgraded Tesla's target price from $157 to $320 citing two main reasons - the expected introduction of self-driving cars and, of course, the battery Giga factory. According to him, "Tesla may achieve pole position for the two most transformational developments in the auto industry over the next 5, 10 and 20 years: electrification and autonomous vehicle technology."
Just a quick reminder, Adam Jonas and his team at Morgan Stanley were among the first to spot the perfect buying opportunity in mid-November, when the stock tumbled to its low levels of $121.
2. Panasonic Corporation (OTCPK:PCRFY)
The news came in as a great catalyst for the Japanese manufacturer. On Wednesday, its stock closed at a three-week high, adding 7%.
The cooperation between the two companies goes back to 2011. In late October, 2013, Tesla and Panasonic updated their agreement and created a new one in which Panasonic will expand its supply of battery cells to the automotive company. The new agreement will last four years and will provide Tesla with nearly 2 million cells through 2017. Obviously these two companies created a great synergy and their ties will only get stronger in the future.
3. Western Lithium USA Corp. (WLC) (OTCQX:WLCDF)
Reno, Nevada is one of the possible places of the Giga factory's future home. It was recently rumored that Tesla scouted the area. It is also home of the Western Lithium USA Corporation, which is both listed on the Toronto Stock Exchange as $WLC and as an OTC under the quote $WLCDF.
Western Lithium USA is developing a lithium deposit and intents to supply domestic consumer electronics as well as electric and hybrid vehicle companies. The deposit is said to be "potentially one of the world's largest strategic, scalable and reliable sources of high quality lithium carbonate."
During trading hours on Wednesday, February 26, the company added 35.85% to finish at $0.72 in Toronto and 28.98% to the $0.62 level in the US. The dramatic leap was seen as questionable in Canada and the Investment Industry Regulatory Organization of Canada (IIROC) sent an inquiry to Western Lithium.
Of course, we are not sure whether Western Lithium will participate in the project, but as the CEO of the company, Mr. Jay Chmelauskas said, they "have the right address."
4. Chemical & Mining Co. of Chile Inc. (NYSE:SQM)
SQM is a Chilean company, which engages in the production and distribution of Fertilizers and Specialty Chemicals, including Lithium and its derivatives. It currently has a 27% share globally in the lithium market. Lithium accounts for 9% of their Total Revenue and 11% of the Total Gross Profit. The reason why they are leaders in this market segment is their lowest production cost globally. Having this competitive advantage over everyone else globally and the great exposure to the lithium's growing demand, SQM is seen as a no-brainer.
These are some of the companies that I expect to benefit from the Giga factory deal. As Elon Musk reveals more details, I will try to provide additional coverage on the stocks.