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Today, citing people close to the record, Bloomberg announced that Tesla (TSLA) had agreed to buy batteries at LG Chem (LGCLF). The batteries manufactured by the South Korean company will be used in model 3 cars manufactured in the Tesla China Gigafactory.
Supply agreement between Tesla and LG Chem is not exclusive
According to the source, LG Chem is currently expanding its battery capacity and modifying its manufacturing facilities to manufacture a different type of battery. LG Chem will not be the only supplier of Tesla's Gigafactory 3. According to Bloomberg sources, Tesla would also be in talks with Chinese battery manufacturer Contemporary Amperex Technology about the supply of batteries. Until now, the company bought its batteries from Panasonic (PCRFY). Panasonic manufactures batteries with Tesla in Nevada.
Gigafactory 3 in Shanghai, China
You may remember that Tesla is building its first factory outside the United States in Shanghai, China. In Tesla Gigafactory: China provides a vital certificate, we explained how the company received a large certificate of acceptance from the Chinese government on August 19th. Construction of Gigafactory 3 began in January 2019 and is expected to begin producing Model 3 units later this year.
According to Teslarati, Grace Tao, Tesla's Global Vice President, said in an interview that Gigafactory 3 was almost finished. Teslarati also said that according to recent information, the plant could be operational by the end of September, unless unforeseen delays.
Importance of the Chinese factory in Tesla
This factory is important for the company for two main reasons.
Firstly, the US domestic market is showing signs of slowing down and the major automakers are looking for alternative markets. China is Tesla's largest market outside the United States. The company announced a 42% increase in sales in China in the first half of 2019. The other historic automakers Ford, General Motors (GM) and Fiat Chrysler (FCAU) have also increased their concentration on their activities in China. during the last years. a few quarters.
Secondly, Tesla will manufacture vehicles for sale on the domestic market in China. The ongoing trade war and the ensuing tariff uncertainties have prevented foreign manufacturers from operating profitably in China. Currently, Tesla imports all of its US vehicles for sale in China. According to Electrek, vehicles manufactured in the Chinese factory will also have a 15% tariff for the most favored nation. However, this price will remain far below the rates of up to 40% on US vehicles in China.
Tesla's challenges in China
However, Tesla is also facing challenges in China, including a slowdown in overall automotive demand. In addition, China's strong growth in the electric vehicle sector seems to be slowing as it is phasing out subsidies. Sales of new energy vehicles in China fell for the first time in two years in July. The shift in subsidy policy also had a negative impact on China's NIO equivalent, Tesla.
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