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"We believe Tesla has a competitive advantage in batteries that is under-appreciated by investors. In the future, we expect that advantage to widen.
Bottom line: Tesla’s lead in batteries is sustainable and other auto OEMs will struggle to gain measurable ground on the company’s 80% US EV market share."
Most of the lithium-ion battery cells used to make the Tesla battery are manufactured by Panasonic at Gigafactory 1 in Nevada. Loup Ventures estimates that over 60% of Panasonic's battery production currently goes to Tesla. The two companies recently signed a three-year pricing agreement for the production of battery cells at Gigafactory Nevada.
In addition, the Californian company has partnered with the Chinese battery supplier CATL and South Korean maker LG Chem. However, Tesla itself has proprietary cell chemistry that is different from the cell chemistry that Panasonic, CATL, and LG Chem sell to other automakers.
"That said, Tesla is experimenting with its own battery cell design through its 2019 acquisition of Maxwell Technologies. If those efforts yield a breakthrough in performance, Tesla would keep the cell design and chemistry proprietary. Separately, based on the company’s 2019 acquisition of Hibar Systems, we expect Tesla will begin manufacturing its own batteries in the next three to five years."
Earlier, Tesla CEO Elon Musk announced that Battery Day would also include a tour of the battery production system. This confirms that the company already has a production line that will soon be able to produce batteries for its vehicles.
Munster emphasizes that these internal efforts do not change the reality that Tesla will need to continue to work with existing battery suppliers to meet demand. Musk expects deliveries to grow 40-50% annually over the next decade, which suggests an increase in annual production from about 500,000 vehicles today to over 15 million in 2030.
Despite this, by relying on vertical integration, battery development cycle times are shortened, which accelerates the pace of innovation. This is Tesla's central competitive advantage. In addition, the end product will provide better performance and reliability than products built with horizontal integration.