Why Tesla Is Considering Domestic Battery Production

President Barak Obama’s critics continue to hammer his attempts to push U.S. manufacturers into electric battery production in 2009. Without exception the companies that took the government’s $1.2 billion in funding have failed spectacularly or simply found that the money didn’t help them much. LG subsidiary Compact Power has failed to produce a single battery since taking the government handout and A123 Systems’ bankruptcy was immediately compared to the failed solar panel manufacturer Solyndra.

Why Tesla Is Considering Domestic Battery Production

Tesla’s domestic battery manufacturing plan

In a recent interview with The Verge, former A123 Systems CEO David Vieau was asked why, following these failures, would Elon Musk be considering domestic battery manufacturing. His answer was thoughtful and succinct, “The efficiency of having a shorter supply chain … you have less material in the pipeline, you have potentially lower freight cost, you could have potentially lower duties associated with that.”

All electric car batteries are heavy. Additionally, the tariff on foreign-made batteries is also a significant consideration that requires addressing. The reason the aforementioned companies failed is simple, there wasn’t sufficient demand and A123 was a slave to the demand numbers arrived upon by defunct electric automaker Fisker. The demand that Fisker anticipated never materialized and it doomed A123 Systems.

Tesla Motors Inc (NASDAQ:TSLA), however, is different. It needn’t rely on outside numbers. Rather, the company needs only look within its own demand production. It’s with this understanding that Tesla Motors Inc (NASDAQ:TSLA) CEO Elon Musk hinted at building his own batteries if the company begins to deliver 500,000 cars a year. Frankly, the world can’t meet those numbers at present.

But former U.S. Secretary of Energy Steven Chu suggests that Tesla Motors Inc (NASDAQ:TSLA) shouldn’t look to make up for this gap but rather enlist existing battery makers to ramp up production. “If I were Elon Musk, I’d say if you can get two or three companies and work with them on what goes inside the battery, that might be better than becoming vertically integrated for the next year or three,” he recently told The Verge believing that Tesla has its hands full at present.

Former U.S. Secretary of Energy Steven Chu thinks that such outside suppliers are probably the way forward, according to The Verge. Though the Stanford physicist says he believes that U.S. companies can and should compete with their foreign counterparts in manufacturing, he thinks that Tesla Motors Inc (NASDAQ:TSLA) might have enough on its plate right now.

A123 co-founder and MIT battery scientist Yet-Ming Chiang disagrees. Chiang believes that Asia isn’t all it’s cracked up to be and despite higher labor and benefit costs Tesla Motors Inc (NASDAQ:TSLA) may choose to produce batteries at home given the falling prices of fuel.

“US manufacturing is important because innovation in industries like batteries occurs in the manufacturing methods as much as in fundamental electrochemistry and materials science,” he says.

“You’ve gotta get your hands dirty to understand where innovation is actually needed,” Chiang pointed out to The Verge.