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Tesla May Risk Battery Supply Issues for the Model 3 in China

It looks like the friction between Tesla and Panasonic is continuing to unravel their relationship. Unnamed sources have reported that Tesla has agreed to buy batteries from LG Chem for its Chinese factory. While this could be a great thing for Tesla, it also puts them at the mercy of a company known to punish customers for crossing it. Does the budding relationship between Tesla and LG mean that we may see battery supply issues in the future?

Tesla Joins Forces with LG Chem

With the signing of an agreement with LG Chem, Tesla has crossed a key threshold in the expansion of its company in China. Locally-sourced parts mean decreased costs and increased profits.

LG Chem will produce the batteries at its Nanjing factory, which is about 200 miles (320 km) west of Shanghai. Since the Gigafactory 3 will only be producing the Tesla Model 3 at first, those batteries will be manufactured solely for that vehicle until the Model Y is released. LG may have to modify some manufacturing facilities for the production, however. It does not currently manufacture the cylindrical automobile batteries that Tesla uses.

The alleged contract does not lock Tesla from procuring batteries from other suppliers as necessary. Tesla may continue to use some Panasonic batteries, and there are whispers that it may strike a deal with Contemporary Amperex Technology for some batteries as well.

LG Chem Known to Throw its Weight Around

Back in February of this year, Audi found themselves on the receiving end of LG Chem’s ire. When Volkswagen announced a plan to build three gigafactories for battery cells in Germany (and therefore reduce reliance on Asian battery suppliers), LG Chem threatened to no longer deliver to Germany. Volkswagen torpedoed the potential project, and LG Chem raised its prices by ten percent in an additional bout of spite.

Then when the Audi e-tron was released in March, they quickly found themselves faced with production issues stemming from battery supply problems. This left them only able to produce about half of their intended quota. It seems like LG Chem may have been giving the company a little reminder of who was in charge.

Will Tesla run into similar problems when committing to a relationship with LG Chem? Perhaps if they make an effort not to cross them, then Tesla will not face similar issues in the future. We may just have to wait and see what happens.

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