Tesla Motors Inc (NASDAQ:TSLA) is about to finalize a deal with Samsung Electronics Co., Ltd (OTCMKTS:SSNLF), that will diversify its supply chain. The electric car manufacturer is keen on securing lithium ion batteries from the Korean firm. Although currently in a testing phase, where the life of the battery while be put under scrutiny, Tesla Motors Inc (NASDAQ:TSLA) seems to have made its pick. Samsung Electronics Co., Ltd (SSNLF)’s batteries are most likely intended for the Model S sedan, which is currently in high demand. If the deal is concluded successfully, the Model X crossover could also be carrying Samsung Electronics Co., Ltd (SSNLF) batteries, once production begins in 2014.
The reason behind the negotiations with Samsung Electronics Co., Ltd (SSNLF) are quite clear: battery supply diversification. Tesla fears a potential disruption of its supply line, due to the fact that it depends almost exclusively on Panasonic Corporation (NASDAQOTC:PCRFY) for its batteries. A major event, such as the Fukushima earthquake of 2011, could have a serious impact on the firm’s production. In addition, demand for batteries is rising rapidly and Tesla Motors Inc (NASDAQ:TSLA) could soon face a shortage of supply. Hence, increasing the available amount of batteries for sale is a key point in the company’s growth strategy.
As one of the major players in the EV automaker business, Tesla Motors Inc (NASDAQ:TSLA) is bound to increase its demand for batteries over the next few years. LG Chem Ltd (051910:Korea SE) and the Chinese Byd Co Ltd (1211:Hong Kong) are other companies that are looking to grab a piece of the cake. And they are smart to try, since Tesla is one of the fastest growing firms in the industry. The electric car-maker’s stock is up 383% this year, largely due to the drastic increase in Model S sales in California. Further rise in demand for electric cars will bring in more business for Tesla Motors Inc (NASDAQ:TSLA), but also for Samsung Electronics Co., Ltd (SSNLF) once negotiations are finalized.
Overall, the future of the firm is not clear. Despite the confidence many investors put in Tesla Motors Inc (NASDAQ:TSLA)’s CEO Elon Musk – the Steve Jobs of the auto industry – global acceptance of electric cars in a diesel dominated market is uncertain. Nevertheless, the negotiations with Samsung Electronics Co., Ltd (SSNLF) are a step in the right direction, ensuring that production can be continued with a safe supply chain for the car’s core element: its battery.