Analysts Believe Tesla Won’t Be Constrained by Battery Cell Production



Model S at Tesla HQ

Model S at Tesla HQ

At the 2014 NAIAS, Tesla Motors announced it had sold 6,900 Model S sedans in the 4th quarter of 2013.  That figure is an all-time high for Model S sales in a single quarter, but soon Tesla will be manufacturing the Model X and then Gen III too.

Panasonic Stand at 2013 Tokyo Motor Show

Panasonic Stand at 2013 Tokyo Motor Show

With three vehicles rolling down the production line, it seems possible that Tesla could run into some battery cell supply problems.

However, some analysts believe Tesla won’t be constrained by cell production.

Wedbush’s Craig Irwin and Min Xu stated:

“We believe the recent constraints that Panasonic’s available production capacity have presented are likely to be resolved by 2H14 when shuttered capacity is likely to be re-commissioned to produce batteries for Tesla. The cost-out roadmap of a mid- to high-single-digit percent reduction in annual battery costs should support a continued tailwind for 2014 Model S gross margins.”

So, by the second half of 2014, production capacity issues at Panasonic will be sorted out, says the analysts who add:

“We see strong positives in Tesla’s credible path to longer-term battery cost reduction and the Gen-III vehicle target costs, and what we believe will be a receptive buying public willing to purchase EV’s while retaining reasonable expectations for these vehicles. Tesla’s multi-year lead over credible competition suggests the company is well positioned to deliver an aggressive volume ramp.”

However, we see cell production issues reforming when Gen III launches.  The only way Tesla will be able to prevent constraints is with the opening of its announced battery “giga” factory.  This factory could well be the only way that Gen III gets the cells it needs to be sold at Tesla’s targeted level of ~100,000 unit per year.

Bring on the giga factory.

Source: Barrons

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16 Comments on "Analysts Believe Tesla Won’t Be Constrained by Battery Cell Production"

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I suggest Tesla consider building the Giga Factory near northern Nevada.


The cost of shipping lithium is likely negligible for batteries. Here’s a sample of what a lab finds in a Li-NCA battery (the type used by Tesla):

Only 7% of the cathode (and thus 3% of the battery) is lithium. It would make more sense to be near a nickel or graphite production facility.

I’d say Nevada’s proximity to Tesla’s Fremont factory is a more relevant factor than lithium mines.

The lithium is not shipped around or used in pure form as that is highly reactive.
It is always as lithium carbonate, and the weight of the other components is substantial – most of the oxygen in your link, for instance.

So the 7.6% you quote would come out to around 40%.

That does not tie in with the table for elements in the cathode in your link, where the amount of oxygen at 30% is fine, but the 0.31% for carbon is way low.

Since the total comes to ~90% in the table, not 100% the problem would appear to lie in the table not being accurate.

Thanks for that post. That brings up the question, where is the nearest Lithium Carbonate processing plant? I don’t think Tesla would process their own Lithium Carbonate, they would want the finished product.

I know lithium carbonate is what’s stockpiled and traded as a commodity, but I didn’t know battery makers buy that and process it into lithium themselves. I seem to remember a HS science teacher storing it in mineral oil, and figured it could be transported the same way.

Are you saying that cathodes are supposed to have carbon? Or just pointing out that it’s not carbonate that they found? I agree with the latter.

It adds up to 96%, not 90%, but your point is still valid and begs the question what was omitted.

I’m saying that in the battery it is lithium carbonate, not lithium, which has the formula containing lithium, oxygen and carbon in the proportions of the link I gave. Multiply the lithium by 5.3 for the total weight of lithium carbonate. For instance the Leaf uses around 4kg of lithium, which is 21.2kg of lithium carbonate, or near enough 1kg per kwh. That is only around 6.6% of the 300kg Leaf battery. For graphite however: ‘ the investment community is only now beginning to focus on other materials used in Li ion batteries and by weight, graphite is the second largest component. In fact, there is 20 times more graphite than lithium, in a lithium ion battery. Graphite is in a much stronger position than lithium carbonate as it is the anode material of choice for most battery designs. The anode requires a porous carbon material and graphite is the optimum suitor. There is over 10 kgs of graphite in the average HEV and more than 70 kgs in an EV. ‘ What I picked up on was your giving ‘lithium’ instead of ‘lithium carbonate’, as they two often get muddled and result in erroneous figures. So it looks… Read more »

Here is the GREET model for energy and materials flow for batteries produced in both Chile and Nevada:

They seem to be talking about future batteries in 2020, rather than what we have right now, so the figures are difficult to reconcile with others.

Table 2.2 is of interest however.

The 300kg for the Leaf battery includes things like the controller and casing, not included in their cell level figures in the table.

I don’t think you’re right about lithium carbonate being in the battery. Look at all the electrode material formulas:
Carbonate is never in there.

Regarding graphite, I agree. That’s why I mentioned it above.

The battery pack obviously includes casing, coolant, wiring, etc, but that’s stuff that Tesla will likely change from one vehicle to the next. The gigafactory will be producing cells only.

You might be right – I am no engineer, so struggle when the analysis reaches levels where that sort of expertise is required.

Interesting discussion, unfortunately going beyond the depth I can wade in! 😉

Yes, they may not be constrained in 2h14, or in all of 2015, but in 2016 or 2017 when Gen3 is out, I don’t think Panasonic will be able to make enough cells or at the price-point Tesla needs them to be.

In a broader context, Wedbush needs to legitimize a price target. One that builds in earnings on Gen III, as that is the only way to get to ~$170.

Because the capital needed for a giga-factory, even if put on a balance sheet, would likely amortize away reported earnings to a level Tesla may not be able to tolerate, I wouldn’t be surprised if, like Space X, Paypal and the car company, Elon & board decide a separate capital raise and broader energy storage business model are called for. In the same way Solar City may complement the supercharger network’s energy balancing, a relationship, once removed, to a battery company may allow both the freedom for other applications (like CA’s 1.3GW mandate) and a continued unique relationship to Tesla.

It’s wonderful to see it all gather steam.

The answer to balance sheet concerns would be to do what all big multi-nationals do. Spin off a new company just for the a Giga factory, something named “Tesla Giga LLC” or something. Then push off the battery factory capital and construction expenses into that subsidiary.

Tesla will probably be forced to do the same with a real leasing subsidiary pretty soon anyways. They need to spin off a “Tesla Lease LLC” the same way GM spun off GMAC for similar reasons. When Tesla starts going mass market with the GEN III, they are going to have to start offering a real lease. Tesla can’t afford not to book the full profits from the sale of 50 thousand or more cars until they receive each lease payment over 36-39 months. It will just get way too hard to keep explaining GAAP vs. non-GAAP profit numbers every quarter, like they have been doing lately since they began offering their pseudo-lease.

There is something that is not really looked at I think the demand for the model S and model X could easily eat up the demand and the capacity for battery capacity 100,000 electric cars a year leaving no room for a generation 3 at this point. Such as Tesla is talking about how they want to make 40,000 cars this year and get up to 800 to 1200 a week by the end of the year that will use vast amounts of batteries by itself.

As for Panasonic I remember reading that they had over built several large battery factories before the recession expecting to cash in on the lap top computer boom. But they never opened most of them or had to mothball several of them do to the recession. But now with Tesla they working around the clock to reopen these old lab top battery factories and are even talking about expanding them to beyond their pre recession sizes. But I still these large raises in capacity will be enough to feed the Tesla Cookie Monster.

I wonder if we are looking at the wrong point in the supply chain? There seems to be a lot of supply issues with most EV manufacturers which suggests that the problem is with raw materials rather than manufacturing capacity.

It is logical impossibility that there ever will be battery shortage, because it is faster to scale up battery production capacity than car production capacity. Therefore any short term supply problems are only due to inefficient market response to the demand. But this should not be an issue on longer term.

More likely it will be the same as with solar panels that as battery producers are fiercely competing from rapidly growing markets, there will be soon be large over-capacity. Actually there has already been some over-investments that have led into bankruptcies of some less competitive battery manufacturers.

In the early phases of automotive battery development there was a catch-22 situation. Battery startups had to build production level factories in order to convince customers (automakers) that they were “real” to get design wins and prove the economics of their product. If those design wins did not materialize soon enough or big enough, they were left carrying the huge overhead and capital expense of that factory with insufficient production revenue. This is one big reason for the bankruptcies.