[EXCLUSIVE] Tesla looking to acquire stake in LG

Tesla CEO Elon Musk walks next to a screen showing an image of a Tesla Model 3 car during the opening ceremony for Tesla's China-made Model Y program in Shanghai, Jan. 7. Reuters-Yonhap

By Baek Byung-yeul, Kim Yoo-chul

Tesla is looking to acquire a stake in LG Energy Solution, soon to be separated by LG Chem, to procure a stable supply of batteries, bank sector sources told The Korea Times, Monday.

"Tesla is looking to acquire a stake in LG Energy Solution. Specifically, Tesla is said to be exploring taking up to a 10 percent stake in LG Energy Solution," one source said on condition of anonymity as he wasn't authorized to officially speak to the media.

LG Chem, a key battery supplier to Tesla and General Motors, said earlier its decision to spin off its battery business in December was based on its judgment that this is the "right time" to do so, as the battery industry is growing rapidly and structural profits in the electric vehicle (EV) battery sector are being made.

From Tesla's standpoint, any direct investment in LG will help it purchase qualified batteries for use in its Tesla EVs without any outstanding risks in terms of battery supply. Based on Tesla CEO Elon Musk's assertion that they will still rely heavily on cell makers and the huge executional risks of ramping, industry experts said Tesla will likely continue to partner with cell suppliers for its new innovations.

"It's quite early to tell if Tesla has an actual plan to acquire a stake in LG Energy Solution. But given Tesla's growing attempts at cost cuts and moves in producing round batteries, it does make sense that Tesla would explore an opportunity to buy a stake in LG Energy Solution," another source familiar with the issue added.

According to the latest reports issued by Bernstein Research, a top-tier independent investment research firm, Tesla is trying to find a sweet spot between battery size and energy capacity. It aims to increase production of larger cell sizes. The emphasis will move from the 18650 Li-ion format to higher capacities ― 21700 and 46800 ― in the future. The new 46800 cell provides five times more energy and 16 percent longer range. The 46800 cells are easier to manufacture with fewer parts and have a shorter electrical path length to reduce heat.

"Tesla will hand over the battery manufacturing to partners, the same as now, rather than doing its own battery cell manufacturing. We believe the possibility of this scenario is high considering the execution risk … Tesla invest in part of the cell manufacturing process but still partners with a cell manufacturer for the rest of the cell manufacturing process," Bernstein's Mark Newsman said in a recent report co-written by Steven Chen, Yan Li and Jane Wang.

At present, Tesla and Japan's Panasonic operate Gigafactory, a joint venture electric vehicle assembly and battery production plant in the U.S.. But by diversifying battery sourcing channels, Tesla could cut its battery procurement costs. And it bears relevance that Musk announced last week that Tesla will bring a $25,000 passenger EV to market in the next three years.

"While China's CATL is also one of the top battery suppliers to Tesla, given Tesla's deep partnership with Panasonic, Tesla's equity purchase of LG Energy Solution would come and it's no surprise to see that," the second source said. CATL is yet to realize an economy of scale to mass-manufacture quality-assured round batteries.

Global carmakers are rushing to secure a battery supply with the hope of rising EV sales on the back of continued government subsidies and quotas aimed at reducing carbon emissions. LG Chem recently established ventures with General Motors and Geely Automotive Holdings in China.

LG Chem's global EV battery market has spiked from 11 percent last year to over 25 percent as of July this year. It outpaced both CATL and Panasonic.

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