Hmm, I just assumed that there would be demand for all those batteries between cars and other things that need nice batteries. It would be a bit of a disaster for Tesla if the battery factory doesn't make them any money. Seems to me that would really really hurt them after the huge amount of money they will invest in this factory.
It may be the case that they want to have the room to produce 500,000 a year but will start smaller. Battery demand should grow into the future and if Tesla built a factory that only met demand in 2017 then by 2025 they would have to build yet another factory.