Tesla Betting on Winning Lithium Race

CNBC reported that Tesla’s proposed lithium-ion battery Gigafactory brings with it a supply-chain challenge: securing enough lithium and other battery materials like graphite to keep both the Gigafactory and Tesla’s business model humming.

According to the news:

… the whole point of the Gigafactory and Tesla’s vertical integration is to allow the company to produce a mass-market electric vehicle with attractive features and acceptable range at half the cost of its $70,000 Model S. Analysts disagree on the exact figure, but they generally agree that in order for Tesla to drive the price of future vehicles low enough without sacrificing performance, the company will need to get its per-kilowatt-hour cost down to $200 or less. Though Tesla doesn’t offer hard data, industry analysts believe it’s paying roughly twice that today.

Sam Jaffe, an analyst for Navigant Research commented:

I have no idea how they are going to do it, but I’m sure they will do some form of price hedging on the commodities. It might be as simple as buying commodity futures, but it will probably be more sophisticated than that, something involving a direct supplier relationship where a supply of some of these crucial materials is guaranteed at a pre-agreed price.

There’s no question that this is an incredible risky business move by Tesla.They’re bringing a tremendous amount of risk to their business by doing this. But that’s what makes them such an exciting company to watch. You’ve got a huge company with a stellar brand that’s essentially risking it all to shoot for the stars.

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