Tesla Motors Inc (TSLA) Becoming ‘Most Important Global Battery Buyer’

Tesla Motors Inc (NASDAQ:TSLA) is starting to be taken seriously not just by competitors like General Motors Company (NYSE:GM), but also by original equipment manufacturers (OEMs) like Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930), Analysts at Wedbush report that Tesla is in talks to make Samsung one of its battery suppliers and will likely become the world’s most important buyer of batteries.

Tesla Motors Inc (TSLA) Becoming 'Most Important Global Battery Buyer'

Tesla could ink a deal like the one with Panasonic

Analysts Craig Irwin and Min Xu issued a note to investors which focuses on the talks between Tesla and Samsung, which has become qualified as a battery vendor to Tesla Motors Inc (NASDAQ:TSLA). They believe that Tesla Motors Inc (NASDAQ:TSLA) will go into a contract similar to the one it signed with Panasonic in 2009. That contract was then renewed in 2011 and called for Panasonic to cover 80,000 vehicles in four years.

They view the talks with Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) as being “a coordinated move” as Tesla talks with Panasonic about supplying more battery cells in order to produce more battery packs than what the most recent agreement called for.

Tesla makes waves in the battery cell industry

The analysts also believe that it makes sense for Tesla Motors Inc (NASDAQ:TSLA) to introduce a second vendor for its battery cells. The company didn’t deny it would do so when asked by Wedbush analysts about it.

They note that Tesla Motors Inc (NASDAQ:TSLA) started out buying battery cells for the packs used in the original Roadster models from Moli Energy. Then the company started to source its cells from Sanyo Panasonic. They said there appeared to be “limited overlap” between Moli and Panasonic in the early part of 2008, and at that time, Tesla shifted to Panasonic because the supply was more stable.

Is it practical for Tesla to have two suppliers?

However, the Wedbush analysts say that don’t see it to be practical for Tesla Motors Inc (NASDAQ:TSLA) to arrange for dual supply until it begins building battery packs for the Model X crossover vehicle because of the complexities involved in using cells from more than one supplier. They said the characteristics of the cells would be different, so it would be unlikely that the cells from the two companies would be able to mixed together in the same battery pack without some extensive testing to support the design changes.

However, they note that having more than one supplier means that Tesla Motors Inc (NASDAQ:TSLA) might be able to get better prices for its battery cells and will definitely be able to reduce the risk associated with its supply chain.

They remain Neutral on Tesla

They view Tesla’s talks with Samsung as positive because it means that OEMs are beginning to see the huge potential in doing business with the EV automaker. They believe Tesla will “become the most important global battery buyer through the end of the decade.”

Nonetheless, they maintained their Neutral rating on shares of Tesla Motors Inc (NASDAQ:TSLA) and $110 price target. They’ve valued the company based on 2017 estimates.

About the Author

Michelle Jones
Michelle Jones was a television news producer for eight years. She produced the morning news programs for the NBC affiliates in Evansville, Indiana and Huntsville, Alabama and spent a short time at the CBS affiliate in Huntsville. She has experience as a writer and public relations expert for a wide variety of businesses. Michelle has been with ValueWalk since 2012 and is now our editor-in-chief. Email her at Mjones@valuewalk.com.