Chinese battery giant CATL confirms supply agreement with Tesla

One of the largest battery suppliers in the world, CATL, has signed an agreement with Tesla, as reported by Reuters.

The agreement lasts for two years from July 2020 to June 2022 and has no specified capacity restrictions.

In last week’s Q4 results letter, Tesla stated that they plan to deliver at least 500,000 cars in 2020.  They will exit the year with production capacity well above that number.

This will take a lot of batteries, so Tesla is working to secure battery production capacity from several suppliers.

In the Q4 conference call, Tesla CEO Elon Musk confirmed that Tesla was working with both CATL and LG Chem, in addition to their longtime partner Panasonic, to secure battery capacity for their production ramp.

Tesla signed a similar deal with LG Chem in August.

CATL is one of the world’s largest electric car battery suppliers.  CATL has several Chinese clients and also supplies batteries to several of the largest worldwide automakers.

We heard back in November about a rumored supply deal between CATL and Tesla.  At the time the agreement was only preliminary, but now it seems to have been confirmed by both parties.

Tesla recently started building cars at their new Shanghai factory, and will likely benefit from having a local supply of batteries rather than having to ship them in from Tesla and Panasonic’s battery operation in Nevada.  This will also help secure their supply against possible tariffs.

The Reuters article is a little light on detail but does give us more information than we previously knew.  The agreement lasts for two years starting mid-2020 but “does not impose restrictions on Tesla’s purchase volume.”

It looks like Tesla was primarily looking to secure additional supply lines if they aren’t able to ramp up production with Panasonic in time.  Throughout most of Tesla’s history, their production has been constrained by battery supply capacity.  That may continue to be true if Tesla keeps ramping up production quickly, though the company does think that they’ll no longer be production constrained by the end of this year.

Other automakers have had their own battery supply issues recently.  Some upcoming cars have suffered delays in certain territories or cutbacks in manufacturing plans.  Mercedes just admitted Tesla’s acquisition of Grohmann engineering affected its battery production plans.

Those automakers are also going to the big battery suppliers like CATL and LG Chem to try to secure capacity.  It looks like competition is heating up for the world’s battery supply, and Tesla is getting into the game in more ways than one.  In addition to working on making their own batteries, they’re working to secure capacity from other suppliers.