What's the biggest challenge for Tesla? Getting people into its electric cars? Hardly. Tesla delivered a record number of 5,500 Model S cars last quarter. The main issue is finding enough batteries to keep up with demand.
As Forbes reports on CEO Elon Musk's conference call to discuss third quarter earnings:
Cell supply is crippling Tesla’s ambitious effort to expand its global reach. Musk repeatedly talked about the trouble of getting enough cells and how that has caused the company to not market its cars as aggressively as it would like.
Last week, Tesla announced a deal in which Panasonic will provide Tesla with 2 billion battery cells over the next four years, enough to supply around 300,000 vehicles.
That's good news for the next few years. But if Tesla wants to reach its long-term goal of producing 500,000 cars a year it will need to think big. The company is currently expected to surpass 20,000 deliveries this year, but 500,000 doesn't seem so crazy when you consider Tesla is planning an EV at about half the cost of the Model S.
So what's Elon Musk's plan? Build the world's largest battery factory. As he said in the conference call:
“This will be a giant facility. We are talking about something that is comparable to all of the lithium-ion battery production in the world — in one factory.”
There weren't too many details about the factory. But to put into perspective how many batteries Tesla is using (and will use), as Forbes points out, the entire lithium-ion cylindrical battery industry (the kind that Tesla uses) consumes around 660 million cells per year. Tesla's new agreement with Panasonic means it will use 500 million cells in a year.
That's only expected to ramp up in a major way. Tesla's business depends on it.