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Tesla's Future Rides on the Giga Factory

Stocks in this article: TSLA AAPL

Updated from 10:26 a.m. to include thoughts from R.W. Baird analyst in the seventh paragraph.

NEW YORK (TheStreet) -- While the actual earnings from Tesla Motors (TSLA) are likely to get the majority of the attention tonight, there's one other thing people should be looking for: any update on the "giga factory."

During the third-quarter earnings call, CEO Elon Musk mentioned this giga factory, which would increase the number of cells and lithium-ion batteries created. That was a problem when Tesla gave fourth-quarter guidance, as the company showed off its supply constraints. Ultimately, Tesla was able to deliver 6,900 Model S units during the fourth-quarter, thanks in part to its deal with Panasonic (PCRFY), which expanded on a previous deal for lithium-ion cells.

Analysts surveyed by Thomson Reuters are looking for Tesla to earn 21 cents per share on a non-GAAP basis, generating $677.36 million in revenue.

Though Musk didn't give any details about the giga factory at the time, he did note that one needs to be built, and touched on the capabilities it could have. "It's going to have essentially zero emissions and there are no toxic elements that are going to come out of this factory and we will build in recycling capability right into the factory," Musk said on the call. "So old packs would come in one side and get reprocessed as new packs. So a way to think of this is like a factory is the machine that works for machine and that itself has a version, just like you have a version of a product. It's like a version of the factory. So we are trying to figure out what's the right way to do version one at this giga factory and we want to be thoughtful about it and it is going to be a really giant facility, like say we are doing that something that's comparable to all lithium-ion production in the world in one factory."

The giga factory is extremely important to Tesla's growth as an electric car maker, and perhaps as a partner for other users of lithium-ion batteries.

In a January research note, Morgan Stanley analyst Adam Jonas noted the giga factory could push Tesla in a new direction, allowing it to be more than just a car manufacturer. "We found the final sentence of Tesla's prepared remarks on its plans to build the world's largest lithium ion battery factory intriguing: "It is a massive, massive opportunity to push the cost curve down to levels people haven't even dreamed of yet." We find investors are starting to seriously ask if Tesla can be much more than just a car manufacturer," Jonas wrote in the note. "If this company can establish a technological and scale lead in every storage and infrastructure, might we one day look back at Tesla's humble beginnings as a car maker much as Amazon began as a book seller?"

R.W. Baird analyst Ben Kallio, who rates Tesla shares "outperform," noted a mention of the plant could move Tesla shares, being a "positive catalyst for the stock." Shares of Tesla have gained more than 30% year-to-date, putting them among the best performing stocks on the NASDAQ, following a strong run in 2013.

TSLA ChartTSLA data by YCharts

Musk's comments about partnering with others on the factory seem to suggest there is something to this, about Tesla being more than just a car manufacturer. "I think that we would do that giga factory with the raw materials coming in all the way to finished packs with partners and that's probably my best guess and that factory most likely would be in North America, but we are investigating other options as well," Musk said on the call.

Over the weekend, news broke that Apple's (AAPL) head of M&A, Adrian Perica met with Musk some time during the spring of 2013. While it's highly unlikely (I'd go so far as to say, next to impossible) that Apple would ever buy Tesla, the two companies could partner on the giga factory, given how important lithium-ion batteries are to both companies, albeit different kinds.

Given how excited Musk was regarding the giga factory on last quarter's call, we'll be looking for any clues or updates on this "massive, massive opportunity."

-- Written by Chris Ciaccia in New York

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