Although Tesla is known for its innovation in the automotive industry, Tesla has begun to realize that it should not pay too much attention to technical details and perfect design during the development of Tesla Roadster. And then Tesla transformed itself into a company that stressed both innovative performance and cost management when developing Model S and Model X. And Tesla attached greater importance to the implementation management of feasible solutions for Model 3 and Model Y.

Tesla quickly reached the stage of cost control. Tesla is actively looking for various components and suitable solutions that can reduce costs and continues to simplify vehicle structure and manufacturing processes. As a result, Tesla can be said to be a combination of the innovative nature of tech companies in Silicon Valley and the ability of traditional automakers to focus on production costs.

Like Apple, Tesla is doing practical research and development, with the goal of introducing the right products to the market. This makes us even more convinced that Tesla’s strategy is always centered on that product is the first and price is the second. As a result, Tesla will focus more on the research, development and cost management of the cell, which is the most expensive part of electric vehicles, with the methods that are not toxic to the environment.

At present, Tesla’s supply chain is partly modeled on Apple’s supply chain management, which allows Tesla’s suppliers to follow a principle that Tesla will completely dominate the main parts, just like Tesla and Panasonic jointly build cell production lines to internalize the value activities of manufacturing to control costs.

Tesla currently has three battery suppliers, including Panasonic, LG Energy Solution (LGES) and Contemporary Amperex Technology Co., Limited (CATL).

Tesla has a long cooperation relationship with Panasonic. Tesla believes that the excellent performance of its batteries is good for the promotion of EVs. However, due to the bottleneck of battery production capacity in 2018, considering the safety of the battery supply chain, Tesla added LGES and CATL as suppliers to Gigafactory Shanghai in December 2019 and October 2020, respectively. In 2021, the proportion of LGES was much higher than that of CATL, with about 80% and 20%, respectively, in terms of MWh. With the increase of Tesla’s shipment of EVs using LFP batteries, the proportion of CATL is increasing. In 2022, the proportions of LGES and CATL are expected to reach 60% and 40%.

Tesla believes that there is currently no clear solution to ensure stable battery prices, so it announced in 2021 that it would significantly increase the number of EVs using LFP batteries. As Tesla is considering to build up its second Gigafactory in China in response to the strong demand of EVs, it makes sense for Tesla to add new battery suppliers when ramping up capacity in new Gigafactory.

At present, except CATL and BYD, the capacity of qualified LFP battery makers is highly likely to fail to meet the shipment scale of Tesla. So when Tesla’s decision time is next year or two, the list of suitable LFP battery suppliers will expand. But if it is this year, or even the first half of the year, there are few makers to choose from.

For CATL, Tesla is its biggest client currently, so CATL attaches great importance to Tesla and supports it very aggressively. For BYD, it is of great significance to win orders from Tesla as besides its own use, FAW is the only major EV OEM client using its LFP battery at present. Therefore, we think BYD will be quite aggressive in securing orders and CATL will offer full support for Tesla’s needs in exchange for Tesla not adding a second LFP battery supplier to its new Gigafactory in China. No matter what the outcome is, it will be good for Tesla, because CATL and BYD will actively provide Tesla with pretty good terms.

We think it is normal for automakers to add new battery suppliers at new plants. After all, if an automaker adopts new batteries on its original production line, it needs to change part of the design and adjust the production line, which will affect the shipment significantly. Especially in the current battery supply chain situation, in addition to mastering upstream raw materials, every EV OEM will add new battery suppliers as one of the options to manage this risk. So when Tesla starts production at its new Gigafactory in China, it should be expected to add new battery suppliers.

 

 

Note:

Researcher and Research here defines EV as battery electric vehicle (BEV) and plug-in hybrid electric vehicle (PHEV), with passenger car as the primary purpose.