2nd CATL Factory Basically Next Door To Giga Shanghai

2nd CATL Factory Basically Next Door To Giga Shanghai

CATL is building a second battery factory just 3 blocks away from Tesla. Why is CATL doing this and what will be the benefit for Tesla? What kinds of batteries will CATL be making in this factory? Let's dive into these questions and more!

How is this second CATL battery factory next door to Giga Shanghai? It's because CATL plans to construct this factory 3 blocks away from Giga Shanghai - basically a stones throw away. The purpose of this factory seems to be to supply Tesla with LFP batteries for standard range vehicles.

Nobody can make more batteries than CATL and nobody can make more EVs than Tesla - so this will be a win/win relationship. CATL and Tesla may work jointly on LFP battery research as the two companies are very synergistic in the way they work together. Both have a lot of knowledge on batteries, and with Tesla's manufacturing, this could be how Tesla's LFP batteries start in China.

How Tesla and CATL Will Work Together

In an outcome that is beneficial to both companies, and especially to those who care about Tesla and their mission to accelerate the world to sustainable and green energy, it could go like this: Tesla may have their own patent outside of China for LFP batteries and CATL may have the exclusive right to the LFP batteries made in China. I think that's the best of both worlds for both companies.

Tesla will likely purchase all batteries that CATL makes for quite a long time. If any other EV competitors decided to switch to LFP batteries, they would be at a disadvantage as Tesla is basically the primary customer for CATL's batteries.

Still, LFP is likely going to be pursued by multiple companies, especially since the price of Nickel has gone up substantially, so I think we'll see plenty of LFP options. But, as with all technology in EVs, Tesla has another head start - it is first to start mass producing vehicles with LFP batteries.

LFP Batteries Are Great

LFP batteries are a very important technology. They are cheaper, and can charge to 100% reliably and for a longer life of the battery. Let's crunch some numbers:

If a standard Model 3 in China is around $40,000 and has a margin of 30%, then that would mean it costs $28,000 to build. An LFP battery creates a higher margin due to its lower cost and now that same vehicles costs $25,000 to build. The margin is now a staggering 37.5% for a car!

We will see economies of scale start to factor in when Tesla is able to produce hundreds of thousands to millions of vehicles with LFP batteries, which will increase their margins and bottom line, raising their earnings per share, and benefiting shareholders of Tesla. This isn't a surprise to me. Elon Musk is constantly trying to reduce costs.

I'm looking forward to getting my Model 3 RWD with LFP batteries around July, 2022. I expect the car to last a long time - though, I will likely trade it in for a Cybertruck when it comes time for my truck to be built!

Will Tesla and CATL work together on LFP batteries? Are there any other companies that are going to catch up to Tesla in battery technology and LFP batteries?

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Jeremy Johnson is a Tesla investor and supporter. He first invested in Tesla in 2017 after years of following Elon Musk and admiring his work ethic and intelligence. Since then, he's become a Tesla bull, covering anything about Tesla he can find, while also dabbling in other electric vehicle companies. Jeremy covers Tesla developments at Torque News. You can follow him on Twitter or LinkedIn to stay in touch and follow his Tesla news coverage on Torque News.

Image Credit, Tesla Economist, Screenshot