Tesla, Samsung SDI said close to battery deal

Tesla Motors is on the verge of inking a supply deal with Samsung SDI for battery cells for its electric vehicles, breaking its exclusive supply partnership with Japan’s Panasonic, according to a report from the Nikkei.

The Sunday report said a batch of Samsung SDI’s battery cells had arrived at Tesla’s development base in California. The volume is considered large for a pilot project, which suggests that the batteries will be used for a final test before full-scale adoption.

Samsung SDI, a main supplier for European luxury carmakers including BMW, Bentley and Ferrari, declined to confirm the report. Its CEO Cho Nam-sung said last September the discussion with Tesla for a deal was “going smooth.” Shares of Samsung SDI ended 6.3 percent higher on Tuesday at 118,500 won.

Japan’s Panasonic has been almost an exclusive supplier of automotive-grade lithium-ion battery cells ever since the Silicon Valley company began churning out electric vehicles in 2008. Panasonic uses a bundle of 6,000 standard cylindrical lithium-ion batteries, known as 18650.

“Battery supply from a single producer has made it very challenging for Tesla to handle massive advance orders for the upcoming Model 3 and to meet its goal to ramp up annual sales volume to 1 million cars by 2020,” said Han Byung-hwa, an analyst at Eugene Investment & Securities. “Tesla needs a new partner like Samsung SDI to induce the lowering of battery prices and enhance supply flexibility.”

Tesla has received more than 373,000 pre-orders for the Model 3, which starts at $35,000 before incentives.

Tesla and Panasonic are jointly constructing a battery plant called Gigafactory in Nevada, the United States, which is set to reach full annual production capacity to churn out 500,000 vehicles in 2020. Total investment in the factory is estimated between $4 billion and $5 billion, the majority of which will come from the automaker.

Samsung SDI’s Korean rival LG Chem once supplied batteries to Tesla Roadster, an initial model, but the volume was limited.

On news of the potential Tesla-Samsung SDI deal, Deutsche Bank raised speculation that Tesla will source from all three leading EV battery suppliers - Panasonic, Samsung SDI and LG Chem - to support its production volume.

Industry insiders say Tesla contacted Samsung SDI as well as LG Chem and SK Innovation last month and chose the former because its prismatic battery cell has the technological edge. Automotive battery producers use different battery cell forms.

LG Chem advanced 1.1 percent to close at 265,500 won on Tuesday. The chemical unit of LG Group mainly supplies to Korea’s Hyundai Motor, Kia Motors as well as General Motors and Ford.

BY SEO JI-EUN [seo.jieun@joongang.co.kr]