The world’s most valuable automaker headed by billionaire Elon Musk Tesla Inc wants to shift to a less expensive battery for its electric vehicles, namely iron-based ones.
The problem has been that China has dominated the production of lithium iron phosphate (LFP) batteries until now.
After Apple, Tesla plans to adopt LFP batteries, of which 95 percent are produced in China thanks to a series of patents held there in its fleet of standard-range vehicles globally.
Chinese patents are expiring soon
However, these patents are expiring soon and Tesla plans to adopt LFP batteries for its electric vehicles and move battery production closer to its factories.
But first, it needs to figure out how to overcome political tensions to get a Chinese partner to build the iron-based batteries near its US factories.
“Our goal is to localize all key parts of the vehicles on the continent,” Drew Baglino, senior vice president of powertrain and energy engineering at Tesla, told investors. Tesla is building factories in the United States and Germany.
“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.”
The political tussle
LFP technology is cheaper and safer than nickel-based batteries, although they lack the same energy density as nickel-based ones to allow cars to travel farther on a single charge.
The technology has garnered interest from EV makers. Since June, Apple Inc has been in early-stage talks with China’s CATL and BYD to get LFP batteries for its planned electric vehicles and wants them to build factories in the United States.
However, the world’s two biggest economies have yet to resolve disputes over tariffs, intellectual property rights and Chinese incursions into Taiwan’s air defense identification zone.
In addition, China’s sweeping regulatory crackdown, mainly aimed at the technology sector, could pose yet another hurdle.
Eying these issues, CATL is reluctant to build a factory in the US.
Last year, CEO Elon Musk said Tesla would use LFP batteries for its China-made Model 3, saying the move would free up battery capacity for the Semi truck and other vehicles that require higher-density, long-range batteries based in nickel.
Tesla soars high for the fifth consecutive year
Despite the pandemic and supply-chain crisis, Tesla reported record revenue for the fifth consecutive quarter on October 20, 2021, but still faces future worries with supplies—including batteries used in its electric vehicles.
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 percent early Thursday following the earnings call, reaching nearly 900 at 10:25 a.m. ET. For the year, shares are up more than 20 percent.
Chief Financial Officer Zachary Kirkhorn said it is “quite a bit ahead” of its plan to increase deliveries of vehicles by 50 percent this year, adding that fourth-quarter production “will depend heavily on the availability of parts, but we are driving for continued growth.”
Referring to production ramp-up at new factories in Berlin and Texas, he added, “there’s quite an execution journey ahead of us.”