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Understanding Tesla’s Giga-Scale Battery Challenges

I’m the eldest of five sons and one of the first things every big brother learns is that tormenting his younger brothers can be tons of fun. Some habits are hard to break and I’ve done my share of tormenting less experienced investors who believe in an EV Santa Claus. Every once in a while, however, every good big brother sits down and tells his siblings the plain truth about the joys, opportunities and challenges of life without deliberately pushing their hot buttons. Since I’m in a festive mood after a wonderful Thanksgiving dinner I’ll take the rhetoric down a notch and see if a calm voice of reason can soothe bruised egos and explain the giga-scale battery challenges Tesla Motors (TSLA) must overcome if it wants to be more than a niche manufacturer of toys for rich boys.

Battery Supply Challenges

Over the last few months, there’s been a growing awareness that Panasonic doesn’t have enough battery manufacturing capacity to satisfy Tesla’s growth targets. While the two companies have inked an agreement that will give Tesla the ability to buy up to 2 billion cells over the next four years, Tesla can’t make more than 300,000 cars with those cells. Tesla should have adequate cell supplies for likely sales of the Model S and potential sales of the Model X, but it can’t seriously consider launching a third generation EV for the mass market without locking down a robust and dependable supply chain for the batteries those cars can’t do without.
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