Understanding the logic for Tesla’s proposed $5 billion battery plant

An article in the Wall Street Journal (April 2, 2014) titled “Does Tesla Need a $5 Billion Battery Factory” describes Tesla’s planned mass market electric cars (the GEN III) priced at $35,000 and the current $25,500 cost of the 85 Kwh battery pack for the Tesla Model S. The pressure to reduce battery costs by 30%, the plan to commit to purchases of primary metals such as cobalt are described as possible reasons for the plant. But the reasons for vertical integration by an auto OEM upstream continues to be a puzzle. Will Tesla plan to supply batteries to itself as well as competitors to manage costs ? Will the pressure to open the plant by 2017, and the corresponding downward pressure on battery prices, force current battery suppliers to partner with Tesla in this new plant ? Will the announced 30% cost reduction goal spur innovation by current battery makers who will be supplying other OEMs, thus increasing sales of electric vehicles ?

About aviyer2010

Professor
This entry was posted in Operations Management, Supply Chain Issues, Sustainability and tagged , , , , , , , , , . Bookmark the permalink.

2 Responses to Understanding the logic for Tesla’s proposed $5 billion battery plant

  1. Tesla seems to be playing chess while the other OEMs play checkers. The battery must be considered a critical component considering its cost. Tesla probably feels it can manage battery production substantially better. It is not quite the commodity as it is in other cars because it is so critical to the main functions of their cars…

  2. Additionally they would stand to benefit from more electrics on the road since they are already building charging station infrastructure.

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