Tesla (TSLA) Signs Battery-Supply Agreement With China's CATL
Zacks Investment Research | Feb 03, 2020 08:46PM ET
Tesla, Inc. (NASDAQ:TSLA) recently signed a battery-supply agreement with China’s largest battery producer, Contemporary Amperex Technology Co. Limited (CATL).
Though the agreement does not impose restrictions on Tesla’s purchase volume, the company will determine the battery-purchase volume between July 2020 and June 2022, as per its requirement.
Tesla expects to deliver at least 500,000 vehicles, marking a year-over-year increase of 36% in 2020. Therefore, the company is working toward securing battery-production capacity from several suppliers, since this rise in deliveries will require more batteries.
Last November, Tesla entered into a preliminary agreement of battery supply with CATL to procure cells for the company’s Model 3 cars, which will be manufactured in Gigafactory 3 in China. This news came in after Tesla’s relationship with Panasonic Corp. hit a rough patch, after the latter denied any plan to set up a battery-cell factory for the former in China.
China is the largest electric vehicle market in the world by a substantial amount, almost doubling that of the Unites States. Tesla's latest plant in China will provide the company direct access to this market and help slash costs significantly. In a letter to shareholders, Elon Musk said that this factory was 65% cheaper than any Model 3 factory built in the United States.
Tesla also signed an agreement last August with South Korea’s LG Chem Ltd., in order to source batteries for its Gigafactory 3 in China, which will provide the company with 21700 type battery cells to be used in Tesla’s Model 3 and Model Y cars.
The Gigafactory 3 started delivering cars last December and the company plans to diversify battery supplies for the plant in the upcoming days. Per Tesla, the company will work with both CATL and LG Chem, in addition to Tesla’s long-time partner Panasonic, to secure battery capacity for Tesla’s production ramp.
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