There have been signs recently that Tesla Motors Inc (NASDAQ:TSLA) is working on diversifying its supply line, and now we have a new report that the automaker is adding Samsung to it. This report comes from The Korea Herald and indicates that the two companies are in the final stages of negotiation for Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) to supply Tesla with lithium ion batteries.
Tesla and Samsung deal imminent
The newspaper cites industry sources familiar with the deal between the two companies. The source said Samsung SDI and Tesla Motors Inc (NASDAQ:TSLA) are in the final testing stage before Samsung officially becomes a battery supplier for the EV automaker.
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The final testing stage includes testing the life of the battery, which is done by Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930). Tesla and Samsung will jointly carry out safety and driving tests using the battery, according to the report.
The paper’s sources said the vehicle for which Samsung will supply batteries has not been specified, although it will likely be Tesla’s Model S sedan. The EV automaker is seeing strong demand for the vehicle. Samsung may also supply batteries for the Model X crossover vehicle, which Tesla Motors Inc (NASDAQ:TSLA) is planning to begin production on next year.
Tesla’s diversification of battery supply
One of the biggest concerns for Tesla and its investors is the fact that just a single major event has the potential to disrupt the company’s supply line. Panasonic Corporation (TYO:6752) has been supplying most of Tesla’s batteries for quite some time. Tesla has said that all it would take is a major earthquake like the one which hit Fukushima in 2011 to seriously disrupt its supply chain, so by diversifying that chain, it will be able to better handle such major disasters.
Another big problem for Tesla Motors Inc (NASDAQ:TSLA) has been capacity, so the automaker needs to increase the number of batteries that are available for it to buy. The company may one day need more batteries than the entire laptop industry.
Tesla’s standing as a battery buyer
Tesla has apparently been considering other battery suppliers in addition to Samsung and Panasonic, and companies are beginning to avidly pursue its business. Korea-based supplier LG Chem and China-based BYD are other battery makers the automaker could also add to its supply chain at some point. LG Chem was said to be competing with Samsung for the latest contract.
All of these battery suppliers see Tesla Motors Inc (NASDAQ:TSLA) not only as a major player in the EV automaker, but also a big potential source of revenue as its needs for battery cells continue to increase.