Welcome back everyone!
I’m Jordan Giesige and this is The Limiting Factor.
This is the third video of the LFP series and we’re gonna look at how many batteries
CATL might supply to Tesla in 2025.
Why 2025?
It’s because CATL is targeting 1200 GWh of installed production capacity in 2025.
It’s expected that most of that will be a lithium iron phosphate, or LFP, chemistry.
CATL’s 1200 GWh production target’s fuelled a lot of speculation about how much of that
production output is for Tesla and how many vehicles Tesla could produce with those cells.
In my view, a lot of that speculation hasn’t fully taken into account what 1200 GWhs of
installed capacity means in terms of actual production on an exponential curve.
Furthermore, I haven’t seen estimates that include some of CATL’s other customer commitments.
Today I’m going to walk you through why, after factoring in those two variables, I
think that the actual amount of cells that CATL will supply to Tesla will be closer to
200 GWh.
I’ll also walk through some numbers for what Tesla’s total cell supply might look
like in 2025 from all sources and the split between energy storage and vehicle production.
Before we begin, a special thanks to my Patreon supporters and YouTube members.
This is the support that gives me the freedom to avoid chasing the algorithm and sponsors,
and I hope will eventually allow me to do this full time.
As always, the links for support are in the description.
Let’s start with what 1200 GWh of installed capacity means in terms of actual production
output.
CATL was guiding for 110 GWh of installed capacity by the end of 2020 but their actual
output was 47 GWh.
That’s only 43% of installed end of year capacity.
Why is actual cell production so far below installed end of year capacity?
In 2020, Covid would have played at part, but it would have been a minor factor.
The four major reasons would be as follows: First, some of that capacity would have been
installed in the final months of the year.
This means that the machines weren’t running for most of the year.
Second, after installation, it takes about a year for production capacity to ramp and
hit steady state.
Third, battery factories never achieve their nameplate production capacity.
Defective cells and down time for maintenance usually result in an actual production output
of 80-90% of nameplate production capacity.
That is, 10 GWh of nameplate capacity means 8-9 GWh of actual production.
Fourth, sometimes goals and production timelines slip.
However, let’s assume for this video that CATL’s able to get all the materials and
equipment they need on time and with no issues, allowing them to install all planned capacity
between now and 2025 on schedule.
Let’s create a hypothetical example using this data from Panasonic as a template: If
a company like CATL installed 50 GWh of production capacity in June of a given year, 2 GWh of
cells would be produced in the first quarter and 4 GWh in the second quarter.
That’s 6 GWh of production on 50 GWh of installed capacity.
If they built another 50 GWh factory in June of the second year, that would be another
6 GWh.
The 50 GWh factory installed in the first year would produce 36 GWh in the second.
36 GWh for the first factory and 6 GWh for the second tallies to 42 GWh of production
on 100 GWh of installed capacity.
Then, in year three, if they installed 100 GWh to double production capacity again, the
tally would be 40 GWh from the first 50 GWh factory, 36 GWh from the second 50 GWh factory,
and 12 GWhs for the new 100 GWh factory, for a total of 88 GWh of actual production on
200 GWhs of production capacity.
That’s a 44% utilisation rate, which is close to CATL’s 43% for 2020.
Taking all that into account, my view is that on an exponential curve, 50% is a fair multiplier
to arrive at actual production capacity versus installed capacity.
The 50% multiplier means that the 1200 GWh of capacity CATL has planned for 2025 would
result in 600 GWh of actual production.
How much of that 600 GWh will Tesla get?
CATL is currently China’s largest lithium ion battery manufacturer.
CATL will need to grow at 50% per year just to support the local Chinese manufacturers,
and then will need to provide battery cells to Tesla on top of that.
It looks like CATL’s ambitious 1200 GWh plan is designed to attempt exactly that.
CATL is expecting to double production capacity in 2021 and nearly double production capacity
in 2022.
I’m taking a wild guess here, but I’m assuming they need to do a burst of capacity
increases in 2021 and 2022 to create capacity for Tesla and to a lesser extent European
manufacturers.
Then, after that capacity is added, they’ll grow capacity at 50% per year, allowing them
to support 50% annual growth rates for Tesla, European, and Chinese EV manufacturers.
That is, in 2025, I’m estimating that at least 50% of CATL’s batteries will go to
Chinese EV manufacturers.
The other 50% will go to Tesla and European manufacturers, with 35% of that dedicated
to Tesla and 15% for European manufacturers.
How did I arrive at those numbers?
Volkswagen is expecting 77 GWh of cells from CATL in 2025.
77 GWh is 6.5% of 1200 GWh, plus there’ll be several other European manufacturers using
CATL’s battery cells.
With that in mind, I’m estimating all of CATL’s European customers combined, not
just VW, will account for 15% of CATL’s total production.
In reality, I think it could be anywhere between 10% and 25%.
A 50% China, 35% Tesla, and 15% Europe split of 600 GWhs means 300 GWh for China, 210GWh
for Tesla, and 90 GWh for Europe.
As always, this isn’t investment advice.
I’m sharing this information so you can build your own model that includes your own
multiplier for capacity and factor in your own estimates for CATL’s customer split.
Let’s assume Tesla increases cell consumption by, on average, about 60% per year, reaching
600 GWh of cell consumption by 2025.
60% is a walloping average growth rate over 4 years given that the annual growth rate
for lithium ion batteries is 30-50%.
A moment ago, I said that Tesla could secure 35% of CATL’s a potential 600 GWh of production
output in 2025, which would come to 210GWh of cells for Tesla.
Let’s say 200 GWh for a round number.
If we take my 600 GWh estimate for 2025, minus 200 GWh from CATL, that would leave 400 GWh
to be covered by Tesla’s own in house production and their cell supply from Panasonic and LG
Chem.
I’m estimating that Panasonic is currently producing about 48 GWhs of cells for Tesla
and LG Chem roughly 22 GWh.
That’s a total of 70 gigawatt hours of annual production.
Let’s say Panasonic and LG Chem almost double that for Tesla to 120 Gigawatt hours by 2025.
200 Gigawatt hours from CATL and 120 gigawatt hours from Panasonic and LG Chem would be
320 Gigawatt hours.
That leaves 280 Gigawatt hours for Tesla to produce in house in 2025 to hit 600 GWh.
These numbers a clearly conservative.
The reason my numbers are conservative is because currently, in 2021, the battery supply
chain is already tight, and it’s expected that will evolve into shortages in the next
few years.
Although Tesla’s probably better prepared for shortages than any other EV or battery
company, I’ve restricted Tesla’s growth in cell consumption to a little less than
50% per year from 2024 to 2026 to accommodate the possibility.
I’ve restricted the growth of LG Chem and Panasonic more than Tesla’s growth because
the cells they supply to Tesla are Nickel based.
Battery grade Nickel’s difficult to source and I expect Nickel based battery chemistries
to ramp more slowly than LFP batteries, which use readily available iron.
I expect that, as Tesla has indicated, their production will include Iron based cells,
setting them up for a faster production ramp than LG Chem and Panasonic.
Tesla’s Giga Berlin and Giga Austin are slated to eventually produce between 200 to
250 GWh of cells each, so if Tesla does get access to plenty of Nickel or ramps LFP quickly
we could see much more out of Tesla than 280 GWh in 2025.
Note, this is cell consumption and not vehicle production.
Vehicle production ramps will continue at pace as Tesla pushes into the compact vehicle
segment which uses smaller battery packs.
As an interim summary, my finger in the wind estimate for Tesla’s cell supply from all
sources in 2025 is 600 GWh. 47% or 280 GWh will come from Tesla in house production,
33% or 200 GWh will come from CATL, and 20% or 120 GWh will come from LG and Panasonic.
What are the unknowns and how do they affect the accuracy of my estimate?
First, we don’t know the number battery factories Tesla intends on having installed
in 2025.
So far, we know of two and there may be more planned.
Second, Tesla’s currently buying cells from at least 3 companies.
Tesla could also purchase from the likes of BYD, Samsung, or SK Innovation.
Third, when Elon says a GWh of installed capacity, does he mean before factoring in yield losses
or after?
For Berlin and Austin alone, this could result in a range of between 400-500 GWh for actual
cell production based on a potential 500 GWh of combined installed capacity at those sites.
Fourth, the energy density of battery cells could increase by 10-20% by 2025.
Higher energy density means a reduction the raw materials needed per Gigawatt hour of
cell production.
Fifth, as mentioned earlier, and most important to me, is raw materials availability.
Taken as a group, these factors compound the uncertainty of forecasting to such a great
extent that any forecast, including mine, that goes beyond a two year horizon should
be taken with a large grain of salt.
A forecast is only good as its assumptions.
I’m assuming that Tesla will run into materials shortages for their in house production but’ll
be able to mitigate that by leveraging their market dominance with raw materials suppliers
and with other battery cell manufacturers.
Overall, the 60% annual growth rate I’ve indicated over the next four years for cell
consumption is justifiable based on the information we have today and Tesla’s track record.
Tesla’s claim of 50% or more growth rate for the foreseeable future is the base case.
There is a potential for a much higher growth rate, but I’d need more information on Tesla’s
access to Nickel beyond 2022, the timeline for their in house LFP chemistry, and their
access to lithium beyond 2024.
If Tesla ramps LFP without hiccups and they have access to raw materials through 2025,
Tesla could ramp faster than a 60% average annual growth rate for cell supply.
If they sign contracts with other battery suppliers as well like BYD, Samsung, or SK
innovation, they’ll shoot the lights out.
Finally, what does 600 GWh mean in terms of actual vehicle production?
In my forecast, I’ve said 5.3 million vehicles.
This is down from 650 GWh and 7 million vehicles per year that I suggested in May.
The reason for this change is because several of Tesla’s vehicle ramps have been delayed
and it appears Tesla’s getting into energy storage in a bigger way and more quickly than
I expected.
Overall, the change from 650 to 600 GWh is a difference in compound annual growth rate
from 64% to 60%.
I’m primarily focused on cell supply rather than vehicle production because cell supply
can be used for both energy storage and vehicle production.
Each of those two product areas has its own economics, and I’ll be interested to see
which is more profitable per gigawatt hour in 2025.
With that in mind, on screen is what a rough split could look like for vehicles and energy
storage in 2025.
I’m looking forward to revisiting this in a couple of years.
The view for 2025 should be much clearer by 2023.
The biggest wildcards for me are the Semi and Cybertruck.
They’ll have the biggest battery packs and they’ll use a lot of Nickel.
If I’ve been too aggressive with the Semi and Cybertruck, then I’d expect closer to
6 million vehicles instead of 5.3 or 200 GWh of energy storage instead of 155.
In summary, CATL’s target of 1200 GWh of installed capacity by 2025 shouldn’t be
taken at face value.
Judging by the ongoing gap between production capacity and actual production on an exponential
curve, 600 GWh of actual production is more likely.
Of that 600 GWhs, my view is that Tesla will get a up to 33%, or 200 GWhs, 50% or more
will go to Chinese EV manufacturers with the remainder going to European auto manufacturers.
In addition to the 200 GWhs of LFP cells from CATL, Tesla could produce 280 GWhs of cells
in house and secure another 120 GWhs from other suppliers.
This would lead to a grand total of 600 GWhs of cells consumed by Tesla in 2025, a 60%
annual growth rate from today.
Those cells could be used in a number of ways, but my current view is they’ll be used to
produce around 5 million vehicles and around 150 GWhs of energy storage products.
An argument can be made for a growth rate of more or less than 60% per year over the
next 4 years.
My view is 60% until Tesla provides guidance on raw materials, LFP progress, or additional
battery supply contracts.
I expect growth to be closer to 75% for the next two years.
Then, as raw material shortages create drag, moderated growth of around 50% in the mid-2020s.
Again, that’s cell consumption, not profit or vehicle production, which I expect to continue
at 50% or more.
Elon’s advised that for the foreseeable future, vehicle production will grow at 50%
or more and also indicated that the energy storage business will grow at greater than
100% per year.
I interpret the foreseeable future as 2-3 years.
The variables I’ve laid out today look just beyond the horizon because it felt like materials
supply and the actual production capacity of Tesla’s cell suppliers was missing from
the conversation.
Even if my forecasts are incorrect, these factors will be two of the primary determinants
for Tesla’s evolution between now and 2025.
There are at least two videos yet to come in the LFP series.
The next video will cover BYD LFP.
But before that, I’ll be releasing the next video of the Gigacasting series and my How
a Battery Works video so expect the BYD LFP video to come in mid-December.
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I appreciate all your support, and thanks for tuning in.