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This article is authorized by Chuxingyike (WeChat public account ID: carcaijing), created by the transport industry group of “Economy” magazine, authors: Li Yang, Liu Wanyuan, editor: Shi Zhiliang.
What car model will benefit from the new agreement between Ningde Tesla, which has previously turned the domestic Model 3 into an affordable car with their first cooperation?
On the evening of June 28th, CATL announced that they had signed a “Production Pricing Agreement” with Tesla, agreeing to supply lithium-ion power battery products to Tesla from January 2022 to December 2025.
The renewal of the four-year strategic agreement indicates that CATL’s battery products have been fully recognized by Tesla. Compared with the previous agreement signed in February 2020, the main difference, in addition to the extension of the supply time, is that there is no longer any restriction on the domestic region.
This means that CATL, which has become an important battery supplier for Tesla, may expand the geographical scope of battery supply globally, and the supply of models may also be extended from the single Model 3 to other models such as the Model Y.
Affected by this positive news, the stock price of CATL (300750.SZ) hit a record high that day, surging to 500 yuan per share at one point, eventually closing at 493.9 yuan per share, an increase of 3.71%. Its total market value exceeded RMB 1.1503 trillion. As of the time of publication, the stock price of CATL has climbed to 534.8 yuan, and the market value has reached as high as RMB 1.25 trillion.
In May of this year, there were already insiders who revealed that Tesla Model Y will be equipped with CATL’s production of lithium iron phosphate batteries. However, when contacted by Chuxingyike (ID: carcaijing), Tesla and CATL did not give a definite answer. They stated the supply of follow-up models will be subject to announcements.
To consumers, the biggest signal of Tesla increasing procurement of CATL batteries is that there is a possibility of Tesla models being reduced in price once again. The biggest advantage of the lithium iron phosphate batteries that CATL supplies to Tesla is their relatively low cost. The price of Tesla has frequently fallen since they began purchasing CATL batteries for their China-made Tesla lineup. However, this year’s Tesla model prices have risen instead of fallen due to the rising prices of other raw materials such as chips.
Now that Tesla has deepened their supply relationship with CATL, it may provide a chance for Tesla models to reduce their prices in the future, while at the same time, CATL may become the largest battery supplier for Tesla globally.
Trapped in a cost crisis, Tesla welcomes the dawn of price reduction.Unlike frequent price cuts and the controversial “harvesting old car owners” by Tesla last year, news about the price increases of Tesla’s models has been continuous since the beginning of this year, with the North American market leading the price hikes and the Chinese market following suit.
On May 7th, Tesla’s official website in America showed that the starting prices of Model 3 standard range plus version and long range version, as well as Model Y long range version, have all been increased by $500. According to media reports, this is Tesla’s fourth price increase within two months for the Model 3 standard range plus version and long range version, which has now risen by $2,000. The starting price of the Model Y long range version has also been increased three times and has risen by $1,500.
Although over 90% of the components for domestically-made Tesla are manufactured in China and rely less on overseas supply chains, the two domestically-made models, Model 3 and Model Y, have also experienced price increases.
In March, Tesla announced a price hike for the domestically-made Model Y. The long range and high-performance versions were raised by RMB 8,000 each, from RMB 339,900 to RMB 347,900, and from RMB 369,900 to RMB 377,900, respectively. In May, Tesla announced another price increase, and the standard range plus version of the entry-level Model 3 was raised from RMB 249,900 to RMB 250,900, an increase of RMB 1,000.
Compared to the American-made Tesla Model 3 and Model Y, the domestic-made Tesla has a smaller price increase and lower frequency of price adjustments, but the prices of high-end models have been adjusted to a greater extent. On June 11th, the selling price of the Model S Plaid on the Chinese official website increased by RMB 60,000 to RMB 1,059,990.
On June 2nd, Tesla CEO Elon Musk posted several tweets explaining that the recent price increases of Tesla’s cars were due to increased pricing pressure on the main supply chains in the entire industry, particularly with many raw material prices rising.
In addition to the price increases, delivery times for the Model 3 and Model Y in the North American market have been extended to the third quarter of this year. Tesla says that the delayed delivery is related to the rising prices of raw materials in the global market supply chain, including the current global shortage of chips and the rising prices of lithium, cobalt, copper, and other raw materials.
“Our biggest challenge right now is the supply chain, with microcontroller chips in particular being in short supply. I’ve never seen anything like it,” Musk said. “All manufacturers are very afraid of another shortage of chips, so they are all over-ordering (hoarding), just like the toilet paper shortage that occurred in the U.S., but the scale of the chip shortage is much larger.” However, Musk also added that this situation will not last too long.Cooperation with CATL undoubtedly has become a major weapon for Tesla to control costs. In terms of the automotive supply chain, power batteries account for the highest proportion of the cost of new energy vehicles. Localization of supply and production is the best way to reduce costs and quickly increase output.
Moreover, CATL’s lithium iron phosphate batteries supplied to Tesla have significant cost advantages compared to other suppliers such as LG and Panasonic.
Although Tesla does not differentiate between lithium iron phosphate and ternary lithium batteries based on price, since the second half of last year, after purchasing CATL batteries, the price of the Tesla Model 3 has been frequently lowered, bringing a model priced at around 300,000 yuan down to less than 250,000 yuan at one point.
Although Tesla salespeople have indicated to Caixin (ID: carcaijing) that the price of Tesla models is unlikely to be lowered again due to the early start and deep cooperation between CATL and Tesla, consumers still have expectations for a price reduction for the current Model Y that is not equipped with CATL batteries.
Will CATL become Tesla’s primary battery supplier?
Currently, CATL’s proportion in Tesla’s battery supply chain is constantly increasing, and seizing the pain points of Tesla’s cost control, CATL is very likely to surpass LG and Panasonic to become the largest battery company in Tesla’s battery supplier.
Data from Dongwu Securities Research Institute shows that in 2020, CATL supported 30,000 vehicles for Tesla, and installed 1.7GWh, accounting for 20% of the domestic Tesla share and 6% of the global share. In 2021, CATL’s supply has significantly increased. From January to May, CATL supplied 57,000 Tesla vehicles in the domestic market, and installed 3.1GWh, accounting for 47% of Tesla’s domestic share. Considering the domestically produced Tesla exported, the proportion of CATL batteries in domestic Tesla has exceeded 55%, and the global proportion is around 20%.
From a global perspective, CATL’s proportion in Tesla’s battery supply chain is comparable to that of LG and Panasonic, with shares of 55%, 25%, and 20% respectively, and CATL is undoubtedly the battery supplier with the most growth potential among the three.
On the one hand, in terms of cost advantage, CATL is currently the most competitive battery supplier in the Tesla battery supply market. On the other hand, CATL’s global layout is almost synchronized with Tesla’s. For example, Tesla’s German factory is expected to start production in the second half of 2021 with a capacity of over 500,000 vehicles, and CATL’s German factory will also start production around the same time with a capacity of 100GWh.Turning to Tesla’s largest battery supplier, Panasonic, it is evident that their expansion scale has been slow, and they are unable to keep up with Tesla’s growing speed, while Tesla’s self-developed battery progress is also disappointing and there is still no clear production schedule to date. According to Dongwu Securities’ forecast, CATL will stabilize at 40% to 50% in Tesla’s battery supply chain, becoming Tesla’s largest battery supplier.
Roland Berger’s global partner and vice president of Greater China, Zheng Yun, told Chuxing Yike (ID:carcaijing), “CATL may become Tesla’s largest battery supplier, as the sales of domestic Tesla is very objective, and the specific proportion depends on Tesla’s subsequent global sales structure.”
However, this view has not been unanimously agreed upon by the industry insiders, as the phosphate iron lithium batteries provided by CATL have performance differences with ternary lithium batteries. For example, while phosphate iron lithium batteries have low cost, their low-temperature performance is weaker and the range decline is greater than that of ternary lithium batteries in cold areas. If CATL provides ternary batteries to Tesla, it will lose its cost advantage.
In addition, the international situation is also a major factor affecting future battery supply. Cui Dongshu, secretary-general of the Federation of Passenger Vehicles, told Chuxing Yike (ID:carcaijing), “The battery industry must guarantee the stability of the supply of batteries in various regions. The localization of supply will be more obvious in the future. Tesla will rely more on CATL in the Chinese market, but in other regions, CATL will not be the main supplier, especially when conflicts between China and foreign countries are so severe, and no one will put all their eggs in one basket.”
Obviously, whether CATL will become Tesla’s main global supplier is controversial. But it cannot be denied that CATL will be an increasingly important part of Tesla’s supply chain, and it will also be a major weapon for Tesla to balance costs.
This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.