Tesla China factory will use LG Chem 21700 battery supply agreement is not exclusive

August 27, 2019

Tesla China factory will use LG Chem 21700 battery supply agreement is not exclusive


According to people familiar with the matter, Tesla Inc. agreed to buy batteries from LG Chem Ltd. for electric vehicles produced in factories in China.

The battery produced by LG Chem will be used first for the Model 3 car produced at the Shanghai plant. After the release of Model Y, LG Chem's battery will also be used in this compact crossover model produced in China. After the news came out, the share price of LG Chem soared.

It is said that LG Chemical's supply agreement is not exclusive, which means that Tesla may also purchase batteries from other suppliers. Later this year (|) will be put into production in China, and this electric vehicle pioneer will strive to enter the world's largest new energy vehicle market.

According to a report by Bloomberg in March this year, Tesla plans to use a number of battery suppliers in vehicles made in China and has been on a supply agreement with China's top battery manufacturer, Contemporary Amperex Technology Co. Ltd. (CATL). Negotiate. Tesla has a long-standing relationship with Panasonic Corp., which works with Tesla to produce batteries in Nevada.

key step
Ensuring battery supply is a key step for CEO Elon Musk's plans to expand in China. As the US incentives for electric vehicles weaken, the importance of the Chinese market is growing for this company that has been losing money. Although Tesla has strong fans in China, its local competitors have taken the lead, thanks to the Chinese government's strong support for the industry. Imported cars become more expensive because of tariffs, while domestic electric vehicles can also enjoy preferential subsidies from the government.

For Seoul-based LG Chem, the acquisition of orders from well-known customers such as Tesla has also enhanced its image as a global emerging battery manufacturer.

At 2:21 pm on August 23, Seoul time, the company's share price rose 2.8% instantaneously, up 3.9% throughout the day. Panasonic fell 0.9% in Tokyo and 4.9% in Shenzhen stock market.

In response, a LG Chem spokesman said the company would not comment on issues related to customers. Tesla’s representative in China also did not comment. Representatives of CATL declined to comment.

Negotiations with CATL are continuing, and people familiar with the matter said that it will take some time as the two sides are discussing technical specifications. LG Chem is more flexible in meeting Tesla's technical requirements.

Higher capacity
LG Chem will supply Tesla with the 21700 battery, which has a larger capacity than some older models. The company's plant in Nanjing will supply these battery products, which are located approximately 320 kilometers west of Shanghai.

According to Bloomberg New Energy Finance Data, LG Chemical is the second largest lithium-ion battery manufacturer in the world as a subsidiary of Korea's fourth largest corporate group. The company is seeking to reduce its reliance on chemical products by increasing sales of electric vehicle batteries. The company has reached a supply agreement with Volvo Cars, and Renault and General Motors are also its customers.

On January 7 this year, Tesla broke ground in a factory on the outskirts of Shanghai. Previously, Tesla had been negotiating with relevant departments for many years, hoping to become the first foreign automaker to have all manufacturing facilities in China. Tesla plans to put the plant into production before the end of 2019.

Although China's electric vehicle sales are currently rising, the government's phasing out of subsidies for electric car purchases has hampered growth. China's overall auto market is experiencing a historic downturn, and total sales in the auto industry have fallen by more than a year. However, these did not affect Tesla's investment in the Chinese market.

Here, Tesla is undoubtedly facing fierce competition. BYD Co., an electric car giant backed by Warren Buffett's Berkshire Hathaway Inc., and other Chinese domestic competitors, such as new cars NIO Inc. is winning customers with its locally-made cars, and rivals such as BMW AG and Daimler AG are starting to bring their electric cars to market.