Frontier: Tesla 4680 battery landing progress tracking

Today, I will track the overall progress of Tesla's 4680 battery. In the Q2 earnings conference, Elon Musk repeatedly emphasized that Tesla's 2022 production target of 1.5 million vehicles is decoupled from the 4680 battery progress. In fact, it does not depend on the production progress of 4680 cells in California and Texas. Tesla has enough 2170 batteries in the United States to support the entire automobile production demand for the rest of the year. Logically speaking, the production proportion of 4680 batteries in 2022 will not become strategically significant and important to Tesla until 2023.

Figure 1: 4680 mass production in 2022 is an attempt

As the production progress of 4680 batteries continues to lag behind expectations, Tesla started producing 4680 cells at the Texas Super Factory this quarter (Q3), aiming to exceed the production capacity of the Kato pilot line in Fremont, California by the end of 2022. The 4680 batteries currently produced on the pilot line are not enough to meet the production demand of 1,000 vehicles per week (equivalent to an annual production capacity of less than 4 GWh).

Figure 2 Tesla's current production capacity layout for 4680 batteries

The strategic significance of Tesla's 4680 battery

When we look at Tesla in China, we are always thinking about the leading position of Tesla's three-electric system. In fact, its battery system iteration is based on the cylinder.

· 18650 battery: There was no particularly good choice at that time. The energy was far superior to its peers at that time, and the car price remained high. The qualified supplier was Panasonic.

· 21700 battery: This was an important factor in the Model 3’s price reaching $35,000 at the time, and it did increase production. Qualified suppliers include Panasonic and LG.

4680 battery: This is an important strategic means for Tesla to conduct self-research and production and define the next generation of batteries. Potential suppliers include Tesla's own factories, Panasonic, LG, SDI, CATL, EVE Energy and other Chinese suppliers.

Since Tesla uses batteries from CATL and BYD (DIFU) in its entry-level models, if it cannot make an effective breakthrough in the 4680 battery cells - in terms of chemical system, performance and cost - its advantage in powertrain will be completely leveled.

Figure 3 The strategic significance of iterating 4680 batteries

Therefore, after Tesla's Kato pilot line in California was put into operation, production has increased by 35% per month since March. The Texas factory also plans to start mass production in Q3, which will soon change the current situation. The Texas 4680 battery equipment has been installed and debugged in Q2, and the production line has begun to produce the first test car using Texas batteries. The goal for Texas is to start formal production this quarter, and Texas should be able to exceed Kato's weekly output by the end of this year.

Giga Texas in Austin, which opened in April, currently produces the standard range version of Model Y, which is only sold in North America. It is equipped with a 4680 structural battery pack and will also produce Model Y Long Range with the 2170 batteries shipped over.

As Tesla's battery leadership is at stake, Tesla does not rely solely on its own 4680 production. Its battery partner Panasonic has sent the first batch of 4680 sample batteries to Tesla and started trial production in Japan in May. Due to US regulations, Panasonic may spend $8 billion to produce 4680 batteries for Tesla, which is actually directly related to CATL's landing in North America and Mexico.

Note: Tesla is also evaluating the long-term suspension of regulations due to material constraints.

Samsung SDI is currently building its 4680 battery pilot line in Cheonan, followed by mass production in Malaysia.

LG Energy also needs to build a test line in South Korea, and then build 4680 cylinder production lines in the United States and Europe to meet customer demand.

Figure 4 Tesla 4680 structure battery and corresponding battery companies' capacity ramp-up period (estimated)

Logically speaking, if there are no restrictions on regulations, Tesla's entry-level batteries are based on lithium iron phosphate and subsequent improved formulas, and Chinese battery suppliers are very strong. The distribution plan is shown in the figure below:

Figure 5 Tesla’s global factory battery supply

In China, Tesla has been very responsive to this. From January to July this year, the use of 60kWh lithium iron phosphate has accounted for 3/4, and LG Energy's products have entered the fast track. If the number of vehicles installed is calculated, it has exceeded 80%. As for whether BYD's blade battery will be used by Tesla in China in the future, we still need to observe.

Figure 6 Tesla’s use of lithium iron phosphate batteries

Summary: I think that Tesla has mainly made a start in the use of 4680 batteries, which is somewhat similar to the production problems encountered in 2017. Once the problems are solved, the subsequent promotion of 4680 batteries will be very large.