Tesla Vehicle Production Plans Could Require 160GWh Of Battery Production

Aug. 27, 2018 9:52 AM ET|About: Tesla, Inc. (TSLA)Summary

Dive into Tesla’s current and future production figures and the impact on the supply chain.

In mid-2017, Tesla announced that over 500,000 Model 3 units had been pre-ordered by customers.

Lithium chemical demand for 2019 could exceed 35,000 T lithium carbonate equivalent (LCE), which is a substantial number for a market that only produced less than 250,000 T LCE in.

Author’s note: Originally published by Blackwall in China. Blackwall is an online information sharing platform aiming to connect people and facilitate information exchange in the commodity world.

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Tesla Motors (TSLA) broke through the 5,000 unit Model 3 production target for the quarter ending June 2018. Including Model 3 and Model X production figures, the company reached a peak production milestone of 7,000 units in a week. This is a major achievement for the electric vehicle and lithium battery supply chain, as the supply chain will continue to draw new investment in the areas of exploration activities, material production and battery production.

This increase in production still leaves many individuals waiting for their electric vehicles. In mid-2017, Tesla announced that over 500,000 Model 3 units had been pre-ordered by customers. Pre-order numbers tend to decrease if manufacturers miss the initial deliveries, but they rise again as finished goods are delivered to end customers. Collectively, Tesla has delivered approximately 50,000 Model 3 units, which implies that the company will have to produce the same level of vehicles for the next two years in order to fulfill its backlog of orders, which is a good position to be in as a manufacturer.

Based on recent reports, Tesla produced around 11,000 units in the month of June, which would translate into 132,000 units annually. Tesla’s lithium battery production facility, Gigafactory, started to produce battery components in early 2017, with a nameplate capacity of 35GWh/year. Based on guidance delivered by the company in the first half of the year, a total of 24,000 Model 3 units could be produced during Q2. This total is an addition to the 8,000 units delivered in Q1, for a combined Half 1 2018 production of 24,000 Model 3 units. A base production case of 5,000 Model 3 units per week would translate into 130,000 vehicles, for a combined annual production of approximately 160,000 Model 3 units. Of course, it is important to note that Tesla has failed to meet production targets for several years.

Author supplied: Tesla showroom in Santa Monica, California (May 2018)

Looking forward looking into 2019 based on the information outlined above, Tesla may achieve a base production case of 300,000 electric vehicles for the year, which will require a total of 21GWh of battery power. In the event that the company hits the stated objective, which is a run rate of 10,000 Model 3 units per week, total battery demand would exceed 40GWh of capacity. This volume is more than the nameplate capacity of the initial stage of the GigaFactory. Either Tesla will announce a new battery production facility or the company will incrementally expand on its existing battery production facility. Tesla recently indicated that it plans to build an automotive and battery plant for the Model Y that features vertically integrated manufacturing. It is expected that this model will reach production in 2020.

Lithium chemical demand for 2019 could exceed 35,000 T lithium carbonate equivalent (LCE), which is a substantial number for a market that only produced less than 250,000 T LCE in 2017. Tesla has also made headlines as a result of its plans to enter the Chinese market through the establishment of a production facility with a 500,000 electric vehicle capacity. It is likely that the company will take a vertically integrated approach that includes lithium battery production onsite. Although it would take several years to begin and ramp production, such a facility would eventually produce 40GWh of batteries, requiring over 32,000 T LCE.

Author supplied: Tesla charging station Hamilton, Ontario

In aggregate, the company is planning to increase production beyond its current GigaFactory. Tesla plans to build new facilities in Germany and China and an entirely new facility for the Model 3 vehicle. Assuming that each facility hits 35GWh of battery production capacity, enough to support approximately 500,000 electric vehicles, total battery production would exceed 160GWh. This level of production requires 128,000 T of lithium carbonate equivalent.

In Q2 2018, Tesla entered a supply agreement with an SQM-backed project in Australia to secure lithium hydroxide, which is a direct component of battery cathodes. After running these production scenarios, it is clear that Tesla or its material suppliers will need to secure additional lithium chemical supply in order to hit their lofty expansion targets over the coming years.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Livio Filice

LivioFilice.com Twitter: @liviofilice Facebook: @eLIctrify Focus: Lithium exploration and extraction, residential energy storage, and battery manufacturing; long-term, strategic dividend and income investing. Livio Filice is a seasoned investor with experience in various types of investments, including more than fifteen years in small-cap and penny stocks. Over the course of his career, he has assisted in investor activities for several mid-stage companies, both publicly traded and privately held. Filice offers substantial first-hand experience in how to realize the benefits of a long-term, strategic dividend investment approach that is far superior to speculative stock market investing. Filice has published more than 100 investment articles focused on his long-term strategic dividend approach. He is now excited to offer his views via his new book, Winning the Dividend Game: A simple and strategic stock investing approach to building wealth and generating income. Filice advocates teaching others how to make successful strategic investments in large organizations. Based on his own early experience, he has a particular passion for educating young investors on ways of growing their portfolio while mitigating the downside associated with high-risk, speculative investing. He says: “For a young investor, it is extremely important to buy and accumulate a solid portfolio of dividend-paying stocks.” Purchase Livio's latest books on dividend and income investing Investing

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