Obviously it's incredibly important that we accelerate the transition to sustainable energy. It matters to the world, it matters if it happens sooner or later, and it matters if it happens at scale. In order to make a lot of electric cars, we need a lot of batteries, and overtime I think they're probably will be roughly about as many batteries for stationary storage as there are for cars. If you do this sort of over arching math of what is needed at a high-level to transition the world to a sustainable energy scenario, you need about is much battery capacity in cars as you do in stationary storage.
The lithium ion battery capacity of the world in terms of production capacity is really not big enough yet. Nor does it make the most advanced type of batteries that we need for long-range electric cars. There are a hundred million new cars made every year, there are two billion gasoline or diesel cars on the road worldwide. If you have half a million cars a year and an average kilowatt hour level of 70 then you need 35 GWh. And that's just for the car, If you do stationary storage you need the additional capacity on top of that. This is quite challenging because the total worldwide production of lithium-ion batteries of all kinds, for phones, laptops, you know power drills, cars, everything was only 30 GWh. That's nothing, or at least it's nothing when you consider you want to make half a million electric cars a year, that's how much you need. The basic math was that in order to make half a million cars a year we would need every lithium-ion factory on Earth that makes batteries for phones, laptops, cars everything just to achieve that output. We thought this math does not work obviously, we are not going to get every factory on Earth to just do our stuff, and even if they did there still wouldn't be enough. It was like we got to build a factory otherwise we don't know how to solve this issue. I was like well clearly that is not being build, because you would be able to see it on the satellite picture. Either we figure out someway to build this thing or there will not be the cars that are needed. In order to solve the problem we found that there is really no choice but to build a really enormous factory called the Gigafactory. We just said we got to start building this thing and hopefully people will buy into it and start to believe. Given that we want to try to get to full capacity at our Fremont plant in California of a half million vehicles a year, we need a half million vehicles a year of batteries, and obviously we can't use all of the other factories in the world combined because people want cellphones and laptops and other things. Therefore we have to build this factory. The Gigafactory was like the least bad solution we could come up with, honestly. I don't know of any other way to do it, the batteries we need is so huge. Somebody's got to build this thing. If we don't contribute a bunch of money to building it I don't see any other company doing that. Just to get the whole thing running is something in the order of $5 billion. Fortunately Panasonic has been a great partner making a significant contribution.
The point of the Gigafactory is to get the cost of the batteries down to a point where it is affordable. The Gigafactory is really vital for the future of Tesla in order to produce the mass market affordable electric car.
We are not just doing economies of scale we are also improving the fundamental technology around the cell and the battery pack. Just based on economies of scale, because were talking about a factory that will make as much lithium ion batteries as all other lithium-ion battery factories combined of all times.
The Gigafactory when it's complete will have the largest footprint of any building in the world, of any kind not just factories. The single biggest building in the world by footprint, and second only in volume to the Boeing factory in Washington State. Counting multiple levels it could be as much as 15 million square feet. It's difficult to describe in words but it's a heck of a big factory. We can fit 50 billion hamsters, but in terms of vehicles we actually expect to get to 50 GWh a year of output in 2 years. It's not scale for scale's sake, but if you want to accomplish these goals then there’s going to have to be a big thing. Ultimately we think the factory will produce 150 GWh. This is more than the entire planet produced in 2014. We figured out roughly that this one factory will produce as much as the rest of the world combined. So if you add up all the factories in China, Korea, Japan and elsewhere that made lithium ion batteries, this one is bigger than that. It's not just going to be the biggest lithium ion factory in the world it's also going to be bigger than the sum of all the lithium ion factories in the world.
The factory is designed sort of like a diamond, and the reason for that is if you make it a box shape we would have to move a lot more earth. Eventually, you can sort of roughly see that there's sort of a diamond shape overall, and when it's fully done, it'll look like a giant diamond, or that's the idea behind it. It's aligned on true north, it's a small detail but it’s aligned on true north so we could map out where the equipment is going to be by GPS. The solar panels that are on the roof are also properly aligned. I think it's going to sounds romantic that it's shaped like a diamond and aligned to true north, but there are practical reasons for it as well.
I should mention also that when the Gigafactory is fully operational it will be also be completely operated on sustainable energy. This factory will produce its own energy as well. Through a combination of geothermal, wind and solar it will produce all the energy that it needs. It will be sort of a self-contained factory. The combination of wind, geothermal, and the solar will completely power the Gigafactory, it’s designed to be energy neutral in its energy usage. Of course it's a battery factory so we buffer the energy so we can go 24/7 with a factory that generates its own energy, and might actually end up generating additional energy to give back to the grid.
We're building that in Nevada. We actually had slightly bigger incentive packages from other states that were offered, but we factored in how quickly could we get the Gigafactory into operation? What were the risks associated with that progress? What would be the logistics costs over time of transferring battery-packs and powertrains to a vehicle factory in California? and all those factors weight together is what led us to make the decision in favor of Nevada. There are a lot of other factors as well. A big part was also just feeling really welcome within the state. That is what led us to make the decision for the Gigafactory.
The incentives were a little overstated. I didn't actually know this until we did the press conference that over 20 years the Nevada incentives added up to $1.3 billion. The whole tax credit thing drives me crazy. It sounds much better than it is.The Gigafactory is a $5 billion capital investment to get the factory going. The first time I heard the amount to be 1.3 billion was at the press conference announcing the deal. I was like really how did we get the 1.3 billion? When what we actually got was Nevada gave us some free land, but the state of Nevada has a lot of land it's not in short supply. I also agreed to build a connecting highway southbound that connects to Carson City, but they were going to build that anyway, so I don't know why that should be included in what they gave us. They took what added up over 20 years and made it sound like Nevada was writing us a $1.3 billion check. I'm still waiting for that check, did it get lost in the mail? I don't know. This is the way the press works, of course. If you divide $1.3 billion by 20 -- it's basically a sales and use tax abatements, is what it amounts to. We get like on the order of $50 to $60 million of sales and use tax abatement, divided over 20 years. But this is for something which has a $5 billion capital cost just to get going, and would have to generate over $100 billion over that time to achieve a $1.3 billion tax benefit. Essentially, it's a little over 1% over that period of time, and that is great, but it’s not the way it was characterized in the press. If put in the proper context it sounds like, ok, that is neat -- it's about 5% helpful in setting up the factory, and 1% helpful over the next 20 years. In effect the initial contribution into the Gigafactory by the state of Nevada it's less then 5% and then they have roughly a 1% contribution over 20 years. It's a no loss proposition for the State. As the saying goes the house always wins. Nevada understands the house, Nevada is the house.
I'm pretty excited about how things are going, in fact I think that the pace of technology improvement in electric energy storage is really moving faster than anyone thinks. I would say that battery technology is one of the most difficult technological problems in history. So many smart people in the course of history have tried so hard to improve batteries. You’re really just fighting the laws of thermodynamics very very hard in creating a battery. I mean Edison was a great inventor he tried super hard and he didn't succeed, Tesla himself tried and didn't succeed. Some of the smartest people in history have tried very very hard. What actually tends to happen with batteries is that the improvements maybe 5 to 8% per year in energy density and approximately that improvement in cost. With the Gigafactory we are trying to take economies of scale to the maximum limit in order to reduce the cost even further just by having economies of scale. Having a tightly integrated supply chain that goes from raw materials coming in on rail cards from mines, and out comes a completed battery back. We are taking the fundamental economic efficiencies to the maximum. At this point we have quite a good understanding of all the battery technologies in the world. The Gigafactory is taking economies of scale as far as we can possibly imagine, to a very extreme level. At the Gigafactory what we are doing is consolidating production back all the way from the raw materials. So there is literally rail carts of materials coming in from the mines, and out come completely finished battery packs. This has actually never been done before, for batteries at least. What we are able to do in this process is massively improve the cost of the cells and the packs. Today if you were to trace the movement of the raw materials, from when they are mined, and they go through the various refining steps around the world, and eventually are put in a cell, and eventually that cell is put into a module and a pack, and then put into a car, and then delivered to somebody, that molecule from the mine is doing a around the world trip like three times. It's really crazy.
I think the thing to bear in mind with batteries is there is no material shortage. The Earths crust has essentially an infinite amount of metal as far as humanity is concerned. We have barely scratched the surface of the metal resource availability of the Earths crust. This is a very fundamentally different thing from mining coal or oil, because metal is recycled. Once you have enough metal to support a given size of an industry then it just keeps going in a recycling process. There’s maybe a small amount that exits trough a recycling process, but it’s quite a small amount.
The general rubric of lithium covers many types of chemistries. A really broad range of batteries use lithium as the ion transport. For lithium ion battery packs in the case of Tesla the cathode which is made of nickel, cobalt, and aluminum, is the most expensive part of the cell. The anode is made of carbon and there’s a thin steel shell around the cells. Really the only part of that which is remotely scarce and only slightly so is cobalt. That’s why we moved from a pure cobalt cathode to nickel-cobalt-aluminum cathode which only uses about a quarter as much cobalt. There’s as much nickel as you could possibly want, certainly as much aluminum as you’d need, no shortage of steel, and the cobalt is expensive but there’s certainly enough available to support all the worlds needs.
So there is really not some fundamental metals shortage and as I said at end of life you recycle them. You can think of a battery pack basically as really high grade ore, it’s much more efficient to recycle a battery pack, which has essentially high concentrations of nickel, cobalt, and aluminum than it is to mine rock, which has a very low concentration. At end of life a lithium ion battery pack has still about 10 to 20% of its value as recycling item, so it definitely pays to recycle. We actually have recycling at the Gigafactory itself. All battery packs will be recycled, which makes a lot of sense because this is a really efficient way to recycle it, because we know what the module looks like. We can actually design the recycling machines exactly optimized for the battery packs. We are not trying to recycle any arbitrary battery packs, we are recycling a known battery pack, so we can be really precise about the recycling.
We found we have a great partner in Panasonic. Panasonic is taking care of the cell formation part of it. There are actually many aspects to this, because you have anode, cathode, electrolyte, separator, can, and at the precursor level you've got raw materials coming in from the mines that sort of feed into a variety of other companies like Hitachi and others, they do the precursor processing and then Panasonic takes the anode and cathode materials separator and put that into a cell and then it goes into a Tesla section which creates the module, which is all the electronics, and the packaging, and the conductors, the safety mechanisms, and the cooling loops. Then the modules go into the pack which has a lot of crash structure associated with it and then the pack goes in the car. Then, obviously, Tesla is the kinda landlord of the whole thing as well.
This is really about being able to make enough cells, enough batteries, to make hundreds of thousands, ultimately millions of electric cars, and to do so at a maximum scale and in a way that is affordable to people. Cars obviously need to be affordable otherwise people can't bloody well buy them. In order to achieve that there are two key dimensions that are necessary, one is to keep iterating the technology. Design the technology to be better and better and have multiple versions. This will be our third generation of technology. And then there’s economies of scale. We are driving those to the absolute maximum with the Gigafactory and that's why it's so big, it's big for a reason. That's what the Gigafactory is about. It’s about being able to make enough electric cars and enough stationary battery packs that it actually moves the needle from a global carbon production perspective. That it actually does really change the world. It has to be big because the world is big, that's why.
Then we have another factory in New York doing solar panels. It will be the biggest solar panel producer in North America when it's done. We expect the Buffalo Gigafactory to be a powerhouse of solar panel and solar glass tile output. It is going to be a kick-ass facility. We have made that commitment to the State of New York. We are going to keep that commitment.
We expect to establish probably at least two or three more Gigafactories in the U.S. In the next several years, as well as a couple overseas. We're thinking hard about, where do we put Gigafactories three, four, five and six? We expect to keep the majority of our production in the U.S but it's obviously going to make sense to establish a Gigafactory in China and Europe to serve the markets there, because it's nuts to build cars in California and truck them halfway around the world, particularly when you're trying to make things as affordable as possible – that really hurts. We really want to make our cars as affordable as possible, so that does require some amount of local market production, particularly for the mass market vehicles in order to make it as accessible as possible. It's definitely going to make sense to have at least a Gigafactory in every continent because the logistics costs and the energy cost to transport cars halfway around the world is quite high. So we will reach kind of a saturation here and then we are going to establish a factory in Europe, and a factory in Asia, in China, and perhaps other parts of Asia as well. I think it's going to make a lot of sense to localize the production to the demand. We need to address a global market.
We actually did the calculations that said what it would take to transition the whole world to sustainable energy, what kind of throughput would you actually need? and you need a 100 Gigafactories, a 100 of these, the whole world, all energy. That sounds manageable. Tesla can't build 100 Gigafactories.The thing that's really going to make a difference is if companies much bigger than Tesla do the same thing. If the big industrial companies in China, US and Europe, the big car companies, if they also do this, then collectively we can accelerate the transition to sustainable energy. If governments set the rules to favor sustainable energy we can get there really quickly. Many auto plants and many Gigafactories are needed. Like I said the number of cars and trucks that we have on the road is approximately two billion, and every twenty years approximately that gets refreshed. There's a hundred million new cars and trucks made every year. The point I want to make is that this is actually within the power of humanity to do. We have done things like this before. It is not impossible, it is really something that we can do.
There will need to be many Gigafactories in the future. I do want to emphasize that this is not something that we think Tesla is going to do alone. We think that there is going to be many other companies building Gigafactory-class operations of their own, and we hope they do.
The Tesla policy of open sourcing patents will continue for the Gigafactory, and for all these other things. The way we're approaching the Gigafactory 1 is really like it's a product. We have actually found that theoretically we could do about three times the original estimate. Well, when it's running at full speed, you can't actually see the cells without a strobe light. It's just blur. We're not really thinking of it in the traditional way that people think of as a factory, like a building with a bunch of off-the-shelf equipment in it. What we're really designing with the Gigafactory is a giant machine. It's actually - think of it like a product of Tesla. We're making this really big product that doesn't happen to move. In establishing the factory it was the first time we started thinking hard about the importance of building the machine that builds the machine.