Tesla wants Chinese battery makers to produce iron-based batteries in the U.S.

Tesla reported record revenue for the fifth consecutive quarter on Wednesday despite the pandemic and supply-chain crisis, but still faces future worries with supplies—including batteries used in its electric vehicles.

The world’s most valuable automaker headed by billionaire Elon Musk wants to move to less expensive batteries, namely those that are iron-based. The problem has been until now that 95% of those are lithium iron phosphate (LFP) batteries are produced in China thanks to a series of patents held there. Those patents are expiring soon and Tesla plans to adopt LFP batteries for standard-range vehicles and move battery production closer to its factories.

“Our goal is to localize all key parts of the vehicles on the continent…if not closer to where the vehicles are produced,” said Drew Baglino, senior vice president of powertrain and energy engineering at Tesla, during the Wednesday earnings call.  Musk was not present. “We’re working internally with our suppliers to accomplish that goal and not just at the end-assembly level but as far upstream as possible.”

LPF batteries are cheaper and safer than nickel-based batteries. However, they don’t produce the same energy density as the nickel-based batteries, which means they don’t travel as far on a single charge.

China is the largest EV market and dominates the supply chain of lithium-ion batteries. Musk has said Tesla plans to use LFP batteries for the Model 3, made in China, which would free up battery capacity for the Tesla Semi truck. Semi truck production has been delayed until 2022 due to limited battery availability.

Reuters reported in June that Apple was in early talks with China’s CATL and BYD, major battery suppliers, about the supplying batteries for its electric vehicle. Apple would have battery makers build their facilities in the U.S., according to the report.

During the Tesla earnings call, Chief Financial Officer Zachary Kirkhorn said it is “quite a bit ahead” of its plan to increase deliveries of vehicles by 50% this year, adding that fourth quarter production “will depend heavily on availability of parts, but we are driving for continued growth.”  Referring to ramp up of production at new factories in Berlin and Texas, he added, “there’s quite an execution journey ahead of us.”

Third quarter revenues were $13.7 billion, up from $8.7 billion a year earlier.  In September, Tesla reported deliveries of vehicles had risen for the sixth straight quarter, reaching about 250,000. 

Tesla’s shares rose 3% early Thursday following the earnings call, reaching nearly 900 at 10:25 a.m. ET.  For the year, shares are up more than 20%.

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