Assignment 2 Tesla Group

Class: 24MSC09-04

Rotterdam Business School

Course: Research Skills

Students:

Bilal Eisa (1096979)

Eunjeong Lee (1112308)

Pim Dekker (1100750)

Roel Domhof (1111741)

Willem Meijburg (1101143)

18 oktober 2024

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CONTENTS

Contents .................................................................................................................................................. 2
Chapter 1. Introduction ........................................................................................................................... 3
1.1 Introduction to the research........................................................................................................... 3
1.1.1 Background ............................................................................................................................ 3
1.1.2 Topic/scope of the research.................................................................................................... 3
1.2. Importance of Research ............................................................................................................... 4
1.2.1 Research problem................................................................................................................... 4
1.2.2 Related literature .................................................................................................................... 6
1.3 Problem statement & Question ..................................................................................................... 7
1.3.1. Problem Statement ................................................................................................................ 7
1.3.2. Research Questions ............................................................................................................... 7
Chapter 2 Literature review .................................................................................................................... 8
2.1. Introduction .................................................................................................................................. 8
2.2. Theoretical Questions .................................................................................................................. 8
2.3. Empirical Questions ................................................................................................................... 11
2.3. Conclusion ................................................................................................................................. 15
Bibliography ......................................................................................................................................... 17

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CHAPTER 1. INTRODUCTION

1.1 Introduction to the research

1.1.1 Background
Electric cars are gaining popularity as an environmentally friendly option compared to conventional
gasoline cars. Batteries play a crucial role in electric vehicles. They determine the range and durability
of an electric car. There are many companies that produce Electric vehicles (EV’s), and Tesla is one
of the most progressive electric car companies. Tesla is gaining attention with its creative way of
producing electric vehicles. Their battery technology is being pushed to its limits. Most electric
vehicles currently use lithium-ion batteries. These types of batteries are known for their high energy
capacity and extended durability(Energy, 2024). Nevertheless, these batteries remain heavy and costly.
As a result, this can restrict both the distance a car can travel and the production expenses(Yang,
2017). Tesla's Model S and Model X have established strict benchmarks; however, the company is
striving to enhance affordability of electric vehicles with the Model 3. This redesigned model aims to
be more cost-effective and is expected to capture a larger audience(Juang, 2017). Nevertheless, this
action comes with its own unique difficulties. Manufacturing the Model 3 in large quantities is a
significant challenge, particularly because Tesla must guarantee that their supply chain, production
methods, and service infrastructure are equipped to manage the growing demand(Lambert, 2017).

Tesla is known for its innovations but faces big global supply chain challenges, especially with
battery production. Making lithium-ion batteries for their cars is costly and complicated. This limits
the company's ability to quickly boost production and meet growing demand(West, 2017).
Simultaneously, the electric vehicle industry is growing worldwide. In order to meet the increasing
production demand, Tesla is required to focus on streamlining its supply chain, particularly in
sourcing raw materials for lithium-ion batteries.

1.1.2 Topic/scope of the research

This research focuses on an important aspect of Tesla's supply chain, especially battery production
and the impact on the growth of electric vehicle production. As Tesla starts producing the Model 3 on
a large scale, the role of battery technology in the supply chain becomes important(Yang, 2017). Thus,
the study will investigate three key challenges that Tesla encounters:

• The risks and strategic implications of relying on a single battery supplier.

• The effect of increasing worldwide need for lithium-ion batteries on Tesla's manufacturing
capacity.

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 • The impact on Tesla's production scaling is caused by lack of raw materials that are crucial
for battery production such as lithium, cobalt, and nickel.

By looking at how Tesla handles these issues, the study aims to understand their strategies for meeting
production goals despite supply chain challenges.

1.2. Importance of Research

1.2.1 Research problem
The core of Tesla’s research challenge is being able to increase the production of batteries for the
model 3 car without compromising the quality and price. The issue at hand is that even though Tesla
is dominating the electric car sector, the supply chain for lithium-ion batteries is a bottleneck that may
impede the production of the Model 3.

In Tesla’s supply chain the main risk of battery production is the dependency of one battery supplier,
Panasonic. Depending on one supplier can be a vulnerability to delays and shortages, all of which can
slow down production and increase costs in both financial and time manners. Combined with a
scarcity of key materials, it constrains Tesla’s capacity to swiftly expand manufacturing.

One of the main drivers for the research problem is the rising scarcity of key raw materials in the EV
market. Without major changes in certain technologies, the nickel, cobalt and lithium supply chains
could seriously constrain the widespread deployment of EVs (Jones et al., 2020). Because the model 3
of Tesla is a fully electrical vehicle it depends on the key raw materials, especially lithium, to create a
well-functioning car. This makes the scarcity of these metals a key driver in the problem of this
research.

Furthermore, Tesla is under pressure to meet the growing global demand for electric vehicles (EV)
while retaining cost-effectiveness and quality. The global demand for EV's is growing. Global sales of
EV's vehicles have exceeded 1 million units in the year 2017, a 54% growth compared to the year
prior (Faizal et al., 2019). The reason for this growth is the government's actions to meet the climate
goals (Slowik et al., 2016). To remain competitive, Tesla must expand its production capacity to meet
the rising demand while keeping the Model 3 affordable. The balance in these factors determines the
position in the EV market.

As mentioned in the case Tesla reliance only on Panasonic as its sole battery supplier for in the
EVs(Yang, 2017). It was because of the extensive partnership agreement for the Gigafactory they
made in 2014 (“Panasonic and Tesla”, 2014). Panasonic was the biggest investor in Tesla, covering
30-40% of the total cost from the factory (Sappenfield, 2014). Relying on only one battery supplier

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can pose risks including supply chain disruption, material shortages or delays (Sathish & Weenk).
When these problems occur, it can be an obstacle to meeting demand for electric vehicles. With
growing global demand for electric vehicles and increasing competition, the risks of production
delays and rising costs will increase (Kendall et al., 2022). Today, there are also global issues that
could threaten imports of materials such as nickel, cobalt and lithium-ion, which are crucial for
battery production(Yang, 2017). Examples of global risks include geopolitical conflicts, climate
change, resource shortages, supply chain disruptions, natural disasters and pandemics (Sathish &
Weenk).

The key parties involved in this research are as follows:

- Tesla: Tesla has played a significant role in the electric vehicle market through successful
releases of different models since 2003. The primary challenge they encountered with Model
3 lies in the lithium-ion battery production. In order to reduce reliance on a single battery cells
supplier, Panasonic, Tesla has developed in-house battery productions (Kolodny, 2019).
- Battery supplier: Tesla has only one supplier for battery packs: Panasonic, one of the largest
battery suppliers in the world. Panasonic also invested an estimated 40% of the 5 billion
required for the building of Tesla's gigafactory in Nevada. Panasonic also invested an
estimated 40% of the five billion required for the building of Tesla's gigafactory in Nevada.
- Consumers: The consumers of electric vehicles, especially the Tesla Model 3. They expect a
good quality EV at a competitive price.
- Government: The government influences Tesla's operations in producing the batteries. Here
safety and environmental standards are important. where safety and environmental standards
are important. Furthermore, regulations on clean energy also have an impact on Tesla.
- Investors: The investors are focused on the ability to scale up the production, minimize costs
and maximize profitability.

The relevance of the problem lies in the critical role of battery manufacturing in the electric vehicle
market, particularly for Tesla as a major innovator. Relying on third-party suppliers for battery
production exposes Tesla’s supply chain risks such as shortages and delays, which can disrupt
production and increase costs. Tesla strives to produce its own batteries to reduce supply chain risks,
enabling efficiency and cost reduction(Yang, 2017). Because Tesla implements these concepts, the
Model 3 becomes more affordable and accessible to a broader audience. Removing these obstacles
also benefits Tesla because it ensures increased adoption of electric cars that Tesla can capitalize on.
Also, to sell more vehicles and accelerate the adoption of electric vehicles, this contributes to a more
sustainable automotive industry.

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1.2.2 Related literature
As addressed above, the production of lithium-ion batteries has a significant impact on the electric
vehicle supply chain. Thus, literature about lithium-ion batteries covers the importance of their roles
in the electric vehicles industry. The lithium-ion battery production of electrical vehicles can be
analyzed from three most important factors: battery supplier dependence, rising global demands for
lithium-ion batteries, and scarcity of raw materials of lithium-ion batteries.

Tesla’s reliance on a single supplier for batteries is concerned with its supply chain vulnerability to
production delays and cost instability. Any interruption to Panasonic’s supply chain or production
might bring a significant impact on Tesla’s capacity to increase production (West, 2017). Thus,
literature addressing Tesla’s vertical integration techniques or efforts to develop their own in-house
battery production can identify how to handle supply chain bottlenecks due to a single supplier. This
study will explore how Tesla can meet its production targets for the Model 3 with the current
arrangements.

Furthermore, the lithium-ion battery market size has grown largely, and the revenue is reached out to
more than 50 billion USD in 2024 (Mohammadi & Saif, 2023). The majority of electric vehicles
employ lithium-ion batteries for their better energy density and longer lifespan (Yang, 2017).
Lithium-ion batteries have grown increasingly essential in the electric vehicle markets. They stand out
for their low-temperature performance, low self-discharge capability, and simple charging procedures
(Mohammadi & Saif, 2023). These features made lithium-ion batteries the most attractive option for
commercial applications, in particular for electric vehicles. Literature on Tesla’s approach to balance
between cost-efficiency and quality in mass battery production will be crucial to understand how it
managed effective scale production under demand-side pressures.

Last but not least, the sustainability of the lithium-ion battery production largely depends on the
sourcing of raw materials, especially cobalt and lithium. The main components that consist of lithium-
ion battery are lithium, iron, aluminum, copper, and cobalt (Mohammadi & Saif, 2023). While rising
demands for these materials are expected, the limited geographic availability makes it vulnerable to
geopolitical concerns, raising instability with production costs and supply chain delays. Therefore,
literature on how Tesla and EV market manage shortages of raw materials while increasing battery
production will be essential.

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1.3 Problem statement & Question
1.3.1. Problem Statement
Tesla faces significant supply chain challenges in scaling the production of lithium-ion batteries,
especially for Tesla’s Model 3(Yang, 2017). The growing demand for electric vehicles has created
bottlenecks in the supply chain. Because of Tesla reliance on one single battery supplier (Panasonic)
bottlenecks as production delays, cost overruns and shortages of key materials for battery
production such as nickel, cobalt and lithium, are increasing. The risk of focusing on one single
supplier for batteries jeopardized the ability to effectively increase production while maintaining the
standards of quality and price necessary to compete in the EV market. By solving these challenges,
Tesla can compete and ensure broader acceptance of the electric car, which contributes to a more
sustainable planet(Electric vehicles from life cycle and circular economy perspectives, 2018).

1.3.2. Research Questions

This study focuses on lithium-ion battery production and looks at the main challenges facing Tesla’s
supply chain, particularly with reference to the scalability of the Model 3. To address this issue, a
central research question has been formulated to guide the investigation into potential approaches that
Tesla can adopt to overcome these challenges. Overcoming these challenges will help Tesla meet
growing customer demand. The main question formulated:

“How can Tesla address supply chain bottlenecks in lithium-ion battery production to
enhance scalability?”

This research is analyzed at the organizational level. The emphasis is on Tesla’s internal supply chain
processes and the scalability of production of the batteries for EVs.

To properly answer the main question of this research, the main question has been divided into sub-
questions. These are then divided into theoretical questions and empirical questions. These are shown
below.

Theoretical Questions:

1. How does scarcity of raw materials affect production delays in EV industry?

2. What are the primary risk factors in relying on a single resource or provider for the supply
chain?
3. What strategies can be implemented to reduce risks associated with supplier dependency in
EV production?
4. What strategies can be used to make battery supply chains more scalable?

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Empirical Questions:

5. How does Tesla’s production depend on battery suppliers and how can it reduce its
dependency?
6. What strategies is Tesla adopting to balance high production goals while managing rising
market demand for lithium-ion batteries?
7. How can Tesla address the shortage of key ingredients related to lithium-ion batteries to
ensure scalable production?

CHAPTER 2 LITERATURE REVIEW

2.1. Introduction
This chapter offers a thorough analysis of the existing literature relevant to Tesla’s lithium-ion battery
supply chain and the difficulties it encounters. The three main topics of the review are: shortage of
raw materials, battery production reliance on suppliers, and methods to increase scalability in the
manufacturing of electric cars. To comprehend how Tesla might improve its production procedures
while reducing supply chain risks, each chapter will address the theoretical and empirical questions.
The chapter provides insights into how Tesla might overcome production scaling obstacles,
particularly considering growing global demand and resource constraints, by examining these issues
through the perspective of supply chain management.

2.2. Theoretical Questions

Q1 Theoretical: How does scarcity of raw materials affect production delays in EV industry?
To examine the effect of scarcity in essential raw materials to produce EV’s, it is necessary to define
which essential materials are limited when discussing raw materials. To produce Electrical Vehicles,
the metals; lithium cobalt and nickel are critical for production (Hamilton et al., 2018). These
essential materials are mined in small quantities in a few locations in the world which makes the
supply ever dense.

Relying on these key materials can have a significant effect on production. In general, relying on
sources which can only be obtained in several key places in the world can lead to high dependency on
geopolitical stability. Also, natural disasters can bring disruptions to mining operations which can
bring delay to production. (source)

These minerals can be referred to as Critical Raw Materials (CRM) which are used in multiple
electrical products which, if demand rises, may lead to further sourcing disruption. Currently these
CRMs are mined in various parts of the world. For instance, with over 74% of the total mining of

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Cobalt is mined in Central Republic Congo (Ewing & U.S. Geological Survey, 2024) which lead to a
high dependency on the countries mining operations.

If something happened to these operations, it could cause severe bottlenecks in the supply chain. This
is because it is a challenge to create new mining sites. Opening a new mining site requires high
investments and takes approximate five to twenty-five years depending on preliminary assessment
and regulatory processes (Lehtimäki et al., 2024).

Furthermore, these key minerals are refined in Asia, mainly China. For instance, Lithium, which is a
crucial component in creating the batteries is refined for 57% in China (IEA, 2024), The centralization
of these refineries can cause a lack of demand and an advantage for companies located in that area.
Especially for Tesla, Geopolitical tensions between China and the U.S can have a major role in
sourcing lithium for Tesla’s EV’s.

Because production of EV’s cannot be completed without these key materials, which are dependent
on the latter, a risk of a delay in production is inevitable. In time this will have a major effect on the
production of the model 3 and further car production for Tesla.

TQ2: What are the primary risk factors in relying on a single resource or provider for the
supply chain?

As mentioned, Tesla is experiencing supply chain challenges while scaling up the production of its
batteries for the Tesla Model 3. The cause of these challenges is the reliance on just one supplier for
the batteries, Panasonic. Supply chains that depend on a single source or supplier face several major
risks that can significantly disrupt a company's operations.

The first risk is supplying vulnerability; a disruption to a single supplier can delay production,
increase costs, or even bring production to a complete halt (Pfeffer & Salancik, 2015). This is
particularly undesirable in supply chains where raw materials are scarce, such as lithium, cobalt and
nickel which are essential for battery production. If there is a disruption to the supplier, Tesla’s supply
chain will bear the consequences.

Another significant risk is fluctuations in prices of raw materials for the batteries. Since scarce raw
materials can be susceptible to market fluctuations (supply and demand), this poses a risk as the costs
for raw materials that Tesla incurs could rise sharply. In this way, a single supplier can cause cost
increases throughout the entire supply chain. Tesla must and will sell cars, and in such a scenario, the
battery supplier is in a favorable position when it comes to setting a price (Schmid, 2020). Because
the supplier is in a favorable position, its bargaining power will also be strong. Customers of this
supplier have little power to demand specific terms and conditions (Pfeffer & Salancik, 2015).

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In addition, dependence on a supplier potentially creates quality risks. Production problems at the
supplier may cause reduced quality of the batteries. Since there is no alternative supplier, customers
just must accept the state of the batteries so that the cars can be sold. However, this can cause reduced
customer satisfaction and brand reputation (Van den Brink et al., 2020). There is also a high risk of
supply chain disruption when natural disasters, political instability or labor strikes occur, this can
cause production delays which poses a threat to meet customer demand (Simchi-Levi et al., 2015).

TQ 3: What strategies can be implemented to reduce risks associated with supplier dependency
in EV production?

Companies are trying to find solutions to reduce dependency on one supplier. One of the strategies
that can be applied is to divide the purchase of components or raw materials from suppliers (Aitken,
1998). The company procures from multiple suppliers, which reduces the chance of disruptions in
the supply chain and keeps the price and quality of the product the same. It also brings benefits in
terms of supply chain flexibility and creates competition among suppliers allowing the purchasing
company to command the lowest price ((Handfield, 1993).

Another strategy is vertical integration. This strategy reduces dependence on outside suppliers and
focuses on producing certain components in-house, for Tesla this will be the batteries. The company
can focus on the best quality and lowest cost for these components (Simchi-Levi et al., 2015). Tesla
already does this in the current situation in its Gigafactories. Because Tesla produces its batteries here
itself, it is not dependent on supply chain disruptions at third-party suppliers and can meet customer
demand. Another strategy is to establish long-term partnerships with suppliers. The long-term focus
allows the supplier to invest more in increasing its production capacity so that during high demand,
demand can still be met (Mesquita & Brush, 2008). It provides the company with a stable supply of
certain components. Another approach to address risk in the supply chain is to hold more inventory.
By keeping an inventory of key components, companies can continue production when supply is
temporarily interrupted (Song et al., 2014). However, there are also additional costs associated with
storing inventory and the risk of obsolescence, so a balance must be struck between costs that
minimize the risk of disruption, which we call interest, space and risk costs (Simchi-Levi et al., 2015).

All these strategies together will help manufacturers reduce supplier dependency, make their supply
chain more resilient and achieve stability in production.

TQ 4: What strategies can be used to make battery supply chain more scalable?

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There are multiple strategies to make the battery supply chain more scalable. The first one is vertical
integration. Vertical integration is the ownership and operation of production (Riordan & Columbia
University, 2007). The company controls multiple stages in the supply chain, and reduces reliance on
other parties, which mitigates the risks. Vertical integration provides companies with significant
competitive advantages by ensuring reliability and reducing costs (Porter, 1985). In the battery market,
this can help secure materials like nickel, cobalt and lithium, which are vulnerable to fluctuations.

Another strategy to improve the scalability of the battery supply chain is to diversify. The EV
industry depends heavily on a small number of suppliers and limited resources, nickel, lithium and
cobalt, which increases vulnerability to disruptions. Expanding the supplier network through global
sourcing helps manage these risks by using the strengths of different regions. Tesla’s dependence on
Panasonic could lead to delays if production issues arise. By working with a wider range of suppliers
and sourcing materials from various regions, Tesla can create a more resilient supply chain and handle
the growing demand better. This approach will not only reduce dependency but also allow Tesla to
benefit from the expertise of different suppliers, which gives Tesla a competitive edge (Kotabe &
Murray, 2003).

A third strategy which can be used for the scalability of battery supply chain is sustainable sourcing
of raw materials. Sustainability is becoming more important for the scalability of raw materials.
Companies are exploring more sustainable ways to source materials like cobalt, lithium and nickel.
This also involves the use of recycled materials. Having a closed loop supply chain through recycling
programs not only reduces the dependency, but also ensures a more sustainable approach to battery
production (Harper et al., 2019).

2.3. Empirical Questions

EQ5. How does Tesla’s production depend on battery suppliers and how can it reduce its
dependency?

The key challenge for Tesla is that it depends on a single supplier, Panasonic, for lithium-ion batteries
of the electric devices they are producing. As addressed above, Tesla’s reliance on a single lithium-
Ion battery supplier can lead to a bottleneck, causing supplier vulnerability and limiting a company’s
susceptibility to respond to price changes of key ingredients. Panasonic might encounter
manufacturing issues or geopolitical unrest that would stop Tesla’s whole production line. Also, as
Panasonic has no competitors, Tesla has limited power to get better conditions on prices, which could
result in cost overruns (Alan et al., 2019). In the long run, since Panasonic has significant control over
Tesla’s production capabilities, diminished negotiating power makes it more difficult for Tesla to

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develop innovations or modifications to supply chain procedures. Although Tesla’s cooperation with
Panasonic has enabled the utilization of advanced battery production technology, it has also made it
more vulnerable to supply chain disruption and creates quality risks.

In this paper, some tactics were suggested that companies can use to mitigate these risks: cooperation
with multiple suppliers, vertical integration in production, long-term partnerships with suppliers and
maintaining increase inventory. Elaborating on them, there are some strategies that could be suggested
to Tesla to reduce their reliance on a single supplier.

First, Tesla can diversify suppliers where it adds more suppliers for primary ingredients to their
supply base, ultimately expanding it. It enables Tesla to distribute the supply vulnerability risks and
improve supply chain resilience. It also encourages competition among suppliers, which could result
in more affordable prices and more dependable delivery schedules. Likewise, Tesla should aim for a
strong relationship with multiple suppliers to achieve better innovation. In 2019, it was announced
that Tesla had developed their own in-house battery cells, to decrease its reliance on Panasonic
partnership (Kolodny, 2019). It indicates that Tesla has moved in this direction by developing its own
battery manufacturing factory, but it was not possible without sharing the cost of building battery
technologies with Panasonic which made large investment (Sappenfield, 2014). Long-term
partnerships with suppliers on research and development can reduce dependency and promote better
independent production. Maintaining long-term relationships and bringing in multiple suppliers could
help Tesla strike a balance between flexibility and scalability requirements. With stable connections,
Tesla can avoid potential disruptions due to single-supplier dependency. Supplier diversification
combined with reliable alliances offers a balanced method of handling production requirements.

Additionally, the vertical integration in the production will enable Tesla to gain more control over its
production processes and lower the risk of supply disruptions. For Tesla, the vertical integration in
lithium-ion production refers to internalizing the manufacturing processes instead of depending
exclusively on external suppliers. Tesla already aims to build an independent battery production in-
house system by constructing facilities for battery manufacture (Kolodny, 2019). For Tesla, vertical
integration has many advantages. Through vertical integration in battery production, Tesla can
internalize essential sources and competencies to be equipped with competitive advantage. It firstly
allows more control over the supply and quality of essential components, lowering the possibility of
interruption due to supplier shortages or delays. It frees Tesla from limitations imposed by other
suppliers to directly experiment with novel battery chemistries and technologies. If Tesla could
combine this vertical integrative strategy with long-term relationships with multiple suppliers, this
might promote innovations that lower costs and boost battery efficiency. Furthermore, by establishing

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its own battery manufacturing facility, Tesla can optimize its processes and modify battery
manufacture with better flexibility, leading to increased scalability.

Finally, Tesla can explore alternatives of alternative sourcing and material innovations. To
complement its battery supply, Tesla has been looking for joint ventures with other battery providers
than Panasonic, such as CATL and LG Chem (Matousek, 2020). Furthermore, battery material
innovation, like Tesla’s work on cobalt-free batteries, can also lessen reliance on limited raw
resources and unstable supply chains (Naor, 2022). Ballinger et al. (2019) suggests that some battery
types (i.e., LMO, and LFP) use no cobalt as well as minimal amounts of lithium and graphite
compared to previous technologies. Tesla has also developed their NCA batteries to require less
cobalt (Ballinger et al., 2019). If these developments are effective, Tesla might be able to diversify its
lithium-ion battery supply chain and become less dependent on its battery production.

EQ6. What strategies is Tesla adopting to balance high production goals while managing rising
market demand for lithium-ion batteries?

The gigafactory represents a vertical integration strategy for Tesla. The company controls battery
production, as well as the assembly of the vehicle. The gigafactory reduces the reliance on a single
supplier, like Panasonic. By doing the production of the batteries in-house, Tesla can meet the
growing demand for EV’s. The gigafactories boost the production capacity and efficiency (Cooke,
2020).

To secure a stable supply of materials, Tesla has formed strategic partnerships with key suppliers.
Tesla adopts these partnerships to balance the rising demand for batteries and production goals. The
partnerships help Tesla mitigate risks, negotiate better terms and secure resources. Strategic
partnerships enhance flexibility and efficiency, allowing Tesla to meet demands while maintaining
scalability (Lambert & Enz, 2017).

Recycling batteries is a key strategy for Tesla. By reusing materials like lithium, cobalt and nickel
from batteries, Tesla reduces the reliance on raw materials. Furthermore, it reduces the impact Tesla
has on the environment. Emerging recycling technologies allow Tesla to reuse valuable materials
(Velázquez-Martínez et al., 2019). The recycling strategy helps Tesla control production and costs
while battery demand grows.

Q7. How can Tesla address the shortage of key ingredients for lithium-ion batteries to ensure
scalable production?

Tesla is facing challenges due to the lack of important materials such as lithium, cobalt, and nickel,
needed for their lithium-ion batteries. These materials are important for making high performance EV
batteries. As more people buy electric cars, the competition for these resources is increasing, which

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 leads to supply chain problems and price changes. To stay on track with production and remain
competitive, the company has to take several steps, like making long-term deals for supplies,
investing in recycling, looking into new battery options, and improving its supply chain. Table 1
outlines these solutions, detailing Tesla's specific actions and the resulting benefits.

Table 1. Tesla's Solutions for Addressing Key Ingredient Shortages in Lithium-Ion Battery Production

Solution Description Company action Benefits

The company can secure long- To secure large quantities of Helps the company ensure
term contracts with mining lithium for future electric vehicle consistent raw material
Long-term companies to ensure a stable production, Tesla has established supply, plan for scalable
supply deals supply of key materials like agreements with mining companies production, and protect
with mining nickel, lithium and cobalt. in Australia to provide them with against price fluctuations.
companies These agreements can lock in the needed raw material for the
prices and protect against battery production (Slowik et al.,
market volatility. 2020; Zachariah, 2023).
Tesla can grow its recycling Tesla's partnership with Redwood Mitigates raw material
efforts to recover important Materials, founded by former CTO shortages, decreases
materials from old batteries. JB Straubel, enables the recycling environmental footprint,
Direct recycling, which keeps of battery components to extract and provides a sustainable
Recycling of cathodes intact, can lower the essential materials for reuse in new supply of materials for
battery need for new materials. This batteries (Visconti, August 27, future batteries (Slowik et
materials helps create a more sustainable 2024). al., 2020).
and scalable battery supply
chain. This can reduce the
need for new mining and lower
the environmental impact.
Tesla is exploring the use of The company uses LFP batteries in Reduces reliance on
lithium-iron-phosphate (LFP) certain models, like the Model 3 scarce and costly cobalt,
batteries, which do not require Standard Range, which prioritizes ensures more affordable
Research into
cobalt, a scarce and expensive cost and longevity over maximum production, and supports
cobalt-free
resource. These batteries are range by avoiding the use of cobalt Tesla's goal of lowering
batteries
made with more abundant (Najman, 2024; Olivetti et al., EV costs for mass
materials such as iron and 2017). adoption (Olivetti et al.,
phosphate. 2017).
Tesla can produce many Tesla acquired Maxwell Reduces reliance on
battery components internally Technologies in 2019 which external suppliers, speeds
and collaborate with demonstrates its focus on in-house up innovation, cuts
companies like Panasonic for production to maintain control over production costs, and
Vertical battery manufacturing. key processes (Tesla, May 16, improves quality control,
integration 2019). Also, the company giving Tesla a
collaborates with Panasonic which competitive advantage by
strengthens its internal production mitigating supply chain
capabilities. disruptions (Chakraborty,
2016).

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2.3. Conclusion
Conclusion TQ1: The scarcity of raw materials such as lithium, cobalt and nickel create a challenge
for the global electrical vehicle industry due to its high dependence on these essential materials.
Companies face difficulties like production risk due to the limited availably and high demand of these
minerals. Because these minerals are mined and refined in a few key locations in the world, the supply
of these products is vulnerable to geopolitical tensions and natural disasters. Additionally, the required
time and high investment of creating a new mining site play a significant role in the shortage of these
minerals. As the demand for EV’s keeps rising, the scarcity of these raw materials will ever be a
critical factor in the availability of these cars.

Conclusion TQ2: Relying on only one supplier for the batteries of Tesla's electric cars creates risks in
the supply chain. Consider risks such as supply problems, raw material price fluctuations, battery
quality problems, risks of natural disasters or political instability, and reduced bargaining power.
These risks can cause increased costs, delays in production, and reduced customer satisfaction and
brand reputation.

Conclusion TQ3: To reduce the risks of relying on a battery supplier, there are several strategies that
can be employed. For example, buying from multiple suppliers, creating more flexibility and having
these suppliers compete to lower prices. In addition, vertical integration can be used whereby certain
components, such as the battery for the cars, are produced internally. Another option is to enter into
long-term partnerships with the supplier so that more can be guaranteed. Lastly, one may choose to
hold more inventory of key components to cope with temporary interruptions. Each strategy has
advantages and disadvantages that must be weighed.

Conclusion TQ4: To make the battery supply chain more scalable, vertical integration can be
implemented in Tesla’s supply chain. This allows companies to secure more raw materials like
lithium, carbon and nickel and gain control over the total supply process. By diversifying the suppliers,
Tesla can also decrease sourcing issues and increase security. By realizing sustainable sourcing, like
obtaining a closed loop supply chain, including recycled materials to the supply chain improves the
sustainability and security of the supply chain.

Conclusion EQ5: Due to its single reliance on Panasonic for battery production, Tesla is currently
vulnerable to several concerns, such as price volatility and supply disruption. However, Tesla may
mitigate these risks and its reliance on a single supplier by implementing tactics like supplier
diversification with long-term relationships, vertical integration and development of alternative
sourcing. Tesla will be able to grow production while controlling supply chain vulnerabilities if it
invests in internal manufacturing capabilities through the Gigafactory and investigates alternate

Page | 15
battery materials and suppliers. Tesla can overcome the difficulties while maintaining long-term
innovation and scalability.

Conclusion EQ6: With the use of gigafactories, Tesla ensures scalability in battery production. These
factories boost production and reduce the risk of dependency on one supplier. Telsa also uses strategic
partnerships to secure raw materials and increasing demand from the global market. By recycling or
reusing raw materials, tesla decreases dependency on suppliers and reduces its carbon footprint by

contributing to a clean environment.

Conclusion EQ7: Tesla is tackling the shortage of battery materials through a smart strategy. They
have long-term deals, recycle batteries, and work on cobalt-free tech. This helps them secure materials,
cut costs, and be more sustainable. By controlling more of their operations and partnering with others,
the company can increase production and stay ahead in the electric car market. Thus, these steps make
their supply chain more stable, sustainable, and cost-effective for future growth.

Page | 16
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