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    A Good Problem To Have


    October 10, 2020

    If Elon wants something done right, he’s gotta do it himself. Demand for Tesla’s electric vehicles (EV) is far higher than the supply available and here’s the reason: lack of batteries. Tesla is taking things into its own hands by developing its own batteries.

    Over the past few years, Tesla has hired several battery experts and acquired multiple battery manufacturers to supply their own batteries. On Oct. 2, Tesla made their next move by acquiring German battery maker, ATW Automation.

    The source of their power

    Experts expect the demand for EVs to grow 16x from 1.8m in 2019 to over 30m within 8 years. There are two big problems slowing growth: battery production and costs. Batteries account for 30% of an EV’s cost and that’s not even the biggest problem… suppliers can’t make enough batteries to keep up with the demand.

    • Raw materials… Lithium, one of the key components to producing EV batteries, will have to grow its industry size by 5x to meet the battery demand.
    • Battery makers… Battery producers (e.g. Panasonic and LG Chem), who were slow to ramp up production and struggled to source raw materials, have been unable to meet global battery demand.

    At the current rate, EV makers can only grow as fast as their suppliers. With more and more carmakers joining the EV race, battery supply will be even more limited. Which is why companies like General Motors and Volkswagen are investing billions into developing their own battery factories.

    Others’ misfortune is Tesla’s fortune

    Tesla thinks it can develop batteries better than its current suppliers. Over the past few years, the company has completed several acquisitions to bring battery production in-house. This is bad news for Panasonic, who lost money over the last few years on its partnership to supply batteries for Tesla.

    For investors… In the EV race, there’s Tesla and then there’s everyone else. The company is years ahead of its competitors with its battery technology and it plans to keep this advantage. Here’s what bringing their battery development in-house will do:

    • Reduce cost… If Tesla wants to deliver a $25,000 car to market in 3 years as promised, it’ll have to reduce its battery price from ~$12,000 down to $6,000.
    • Improve competitive edge… Tesla may be years ahead with its tech but the company will need to continue innovating to stay ahead.
    • Improve reliability… Tesla will have more control over the supply of its batteries to meet its production deadlines.

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