Sources familiar with the matter said that Tesla is eyeing for a 10% stake in LG Energy Solutions, which will have a separate battery division LG Chem very soon. To cut costs, Tesla is keen on working with partners who have pioneered the battery tech, instead of going indigenously.
Having created enough roar on Wall Street this year, American automobile giant Tesla Inc (NASDAQ: TSLA) is all set for its next big moves. On Monday, September 28, sources from South Korea confirmed that Tesla is eyeing a stake in LG Electronics Inc (KRX: 066570) battery business.
Citing sources familiar with the matter, The Korea Times reported that Tesla will probably acquire a 10% stake in LG’s soon-to-be separated LG Chem business. LG Chem, currently operating under LG Energy Solution, already supplies batteries to Tesla and General Motors Company (NYSE: GM). However, another source familiar with the matter said:
“It’s quite early to tell if Tesla has an actual plan to acquire a stake in LG Energy Solution. But given Tesla’s growing attempts at cost cuts and moves in producing round batteries, it does make sense that Tesla would explore an opportunity to buy a stake in LG Energy Solution”.
With the industry reports, Tesla stock surged 3.4% on Monday making a high at 5%. At Monday closing, the TSLA stock was trading at $421 with the market cap of $392 billion. The TSLA stock has already given over 400% returns year-to-date and over 750% returns in the last 12 months.
With the undergoing transformation in the electric vehicle (EV) industry, LG’s battery business is also on the rise. Last year in December 2019, LG said that it was the “right time” for the company to float a separate entity. The latest report comes after Tesla’s ‘Battery Day’ announcements last week. The announcement failed to impress Wall Street after CEO Elon Musk said that the company won’t reach the high-volume battery production until 2022.
Tesla’s Ambitions with Battery Manufacturing
Investment research firm Bernstein Research said that Tesla is working on finding the sweet spot with battery energy capacity and battery size. It also aims to boost production for large sell sizes. The company said that the new 46800 cells provide five times more energy with a 16 percent longer range. Besides, the manufacturing of new 46800 cells is relatively easier.
Rather working indigenously on the battery tech, Tesla prefers to work with its partners, noted Bernstein. The investment research firm said:
“Tesla will hand over the battery manufacturing to partners, the same as now, rather than doing its own battery cell manufacturing. We believe the possibility of this scenario is high considering the execution risk … Tesla invest in part of the cell manufacturing process but still partners with a cell manufacturer for the rest of the cell manufacturing process”.
Tesla’s best-partner for its vehicle batteries is Japan’s Panasonic. In fact, Panasonic directly works with Tesla at its Gigafactory in Nevada. Together with Tesla, Panasonic is also working on improving battery technology for higher performance and efficiency. In China, Tesla has joined hands with CATL. Now a deal with LG can help Tesla make deeper and faster penetration in Asian markets.
Recently, Tesla CEO Elon Musk appeared on New York Times’ Sway Podcast. Musk spoke about the latest frenzy around the TSLA stock on Wall Street. He said that he feels that the TSLA stock price is high at the moment. However, he didn’t shy away to say that Tesla will be worth more than now, in the next five years. The CEO also recently announced to bring a much affordable $25,000 car by 2023.
Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.