Analysis: Tesla looks to pave the way for Chinese battery makers to come to U.S.

Electric Last Mile Solutions

21/10/2021 17:02

(Add CATL, BYD comments, raw materials prices)
    By Hyunjoo Jin and Subrat Patnaik
    Oct 21 (Reuters) - Tesla Inc  TSLA.O  wants to shift to a
less expensive battery for its electric vehicles but first needs
to figure out how to overcome political tensions to get a
Chinese partner to build the iron-based batteries near its U.S.
factories.
    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. And
China's sweeping regulatory crackdown, aimed largely at the
technology sector, could pose yet another hurdle.
    China adopted the technology early and makes 95% of the
world's Lithium Iron Phosphate (LFP) batteries, but key patents
expire soon and Tesla said it plans to adopt LFP batteries in
its fleet of standard-range vehicles globally and move battery
production https://www.reuters.com/business/autos-transportation/tesla-beats-quarterly-revenue-estimates-2021-10-20
 closer to its factories.  urn:newsml:reuters.com:*:nL4N2RG3YR
    "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, said on an earnings
call on Wednesday. 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."
    Tesla currently uses LFP batteries from China's CATL in some
China-made Model 3 and Model Ys, and in the United States it
started sales of entry-level Model 3 sedans with LFP.  
    The company did not respond to a request for comment. 
    LFP technology is considered to be 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 and
Reuters reported https://www.reuters.com/world/china/exclusive-apple-talks-with-catl-byd-over-battery-supplies-its-electric-car-2021-06-08
 in June that Apple Inc  AAPL.O  is in early stage talks with
China's CATL  300750.SZ  and BYD  002594.SZ  to get LFP
batteries for its planned electric vehicles and wants them to
build factories in the United States.  urn:newsml:reuters.com:*:nL2N2NQ0AE
    But CATL is reluctant to build a factory in the country due
to political tensions between Washington and Beijing as well as
cost concerns, people said at that time.
    "You cannot discount the whole geopolitical aspect of it,"
Sanjiv Malhotra, founder of battery startup Sparkz and former
U.S. Department of Energy executive, told Reuters.
    "Our customers, they do not want to be caught in this
political crossfire," said the U.S. startup, which is looking at
setting up LFP production lines in the United States to
challenge China's dominance.
    CATL is probably better off manufacturing in China, where
they have access to the world's lowest-cost materials, Roth
Capital analyst Craig Irwin said.
    "A U.S. facility would need a better U.S. supply chain to
get similar to the low cost available in China."
    
    'PRIDE AND JOY OF CHINA'
    President Joe Biden has made it a priority to support the
rollout of electric vehicles to combat climate change, but
battery constraints could remain a key hurdle to his ambitious
plan.
    China is the largest global EV market and dominates the
supply chain for the manufacture of lithium-ion batteries,
including the processing of minerals and raw materials.
    "I call LFP the battery of China, because you really only
have CATL and BYD. So these are really the kind of pride and joy
of China," said Taylor Ogan, chief executive of Snow Bull
Capital.
    Electric Last Mile Solutions Inc (ELMS)  ELMS.O , a
commercial electric vehicle company which currently imports
CATL'S battery packs, is in talks with the company about the
possibility of sourcing batteries at CATL's potential U.S.
factory.    
    CATL said, "We plan overseas investment based on factors
including market demands, investment environment, supply chain,
human resources and cost."
    A BYD spokesperson said the company has battery packing
production facilities in the United States but does not
currently make cells there.    
    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.
    Since then, Musk has pledged to use the tech in more
vehicles and energy storage systems. A Houston energy project
will use LFP batteries. 
    The company is facing higher costs primarily due to cobalt
 CBD0  prices rising around 70% so far this year, with nickel
 CMNI3  up around 20% and aluminum  CMAL3  up around 50%. Tesla
uses these materials to make its batteries.

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Tesla says new factories will need time to ramp up, posts record
revenue      urn:newsml:reuters.com:*:nL4N2RG3YR
EXCLUSIVE-Apple, Chinese manufacturers in talks on U.S. car
battery factory -sources      urn:newsml:reuters.com:*:nL2N2NQ0AE
BREAKINGVIEWS-Elon Musk’s promises are getting more realistic   
 urn:newsml:reuters.com:*:nL1N2RG2BG
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 (Reporting by Hyunjoo Jin in San Francisco and Subrat Patnaik
in Bengaluru; Editing by Sweta Singh, Lisa Shumaker)
 ((hyunjoo.jin@thomsonreuters.com; 82-2-3704-5685; Reuters
Messaging: hyunjoo.jin.thomsonreuters.com@reuters.net))