Tesla Motors Inc (NASDAQ:TSLA) and Samsung SDI are in advance talks about supplying batteries for the Model 3 electric car and also for other energy storage products, a source with a direct knowledge of the matter informed Reuters. This helped Samsung SDI’s shares beat the wider market.

Tesla Motors Inc May Add Samsung SDI As Battery Supplier [REPORT]

Tesla aims to diversify supply risk

Japan’s Panasonic Corp is Tesla’s current battery supplier, but the EV firm reportedly plans to add Samsung SDI as a supplier if sales exceed expectations. However, the source declined to specify the minimum required level of sales needed for the South Korean company to clinch the deal.

A batch of Samsung SDI’s battery cells has already reportedly reached Tesla’s development base in California. The volume is considered large for a pilot project, suggesting that before full-scale adoption, the company will use the batteries for a final test, says Nikkei.

In April, Tesla CEO Elon Musk shared his plans to boost total vehicle production to 500,000 in 2018, which is two years earlier than the original target. However, suppliers have said that it is going to be a difficult goal to achieve. Tesla’s Model 3 has a starting price of $35,000, which is half that of the Model S, and the automaker has already received 373,000 orders for the car. The company expects to begin deliveries in late 2017.

“It remains to be seen whether the orders will translate into actual sales,” the source told Reuters. These discussions were confidential, and for this reason the source chose to remain unidentified. A Samsung SDI spokesman declined to comment. This company is an affiliate of Samsung Electronics Ltd.

Panasonic to lose its dominance?

If the report is true, the deal may end Panasonic’s dominance as almost the sole supplier of battery cells to the American car maker.

Tesla Motors Inc (NASDAQ:TSLA) has set a very ambitious target of producing 1 million units this year, which is 20 times what it produced last year. Thus, it will be taking a very big risk if it relies entirely on Panasonic to supply batteries. It is said that Panasonic’s batteries have better performance and quality than those from other companies, although the cells are believed to no longer have the kind of significant performance advantage they once had. This has given an opportunity to rival South Korean firms to gain on Panasonic.

Also Panasonic has invested in Tesla’s battery cell plant in Nevada, and this is another advantage the company has.