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Tesla’s Powerwall battery production requires ‘super-charged’ supply chain


Phil Bulman

With a ‘lithium gold rush’ expected over the next few years, Phil Bulman warns that the eagerly anticipated planned launch into the UK market of the Powerwall solar energy storage device by Tesla later this year could face some serious problems.

Tesla’s lithium-ion Powerwall battery, an in-home device which allows the local storage of solar energy for later use, was launched this April by CEO Elon Musk. The product has proven popular in the USA, with over 50,000 units pre-ordered in its first few weeks. However, with Powerwall set to launch in the UK at the end of the year, questions still remain as to its commercial viability and whether appropriate measures have been taken to ensure successful mass production.

For the Powerwall to be manufactured in the large quantities anticipated, steps must be taken by Tesla to prepare and strengthen its supply chain. In particular, the sourcing of raw materials remains a huge challenge. Lithium, unsurprisingly a crucial component of Lithium-ion batteries, is in high demand, with projected usage over the coming years expected to outstrip supply by over 25 per cent.

While Lithium in its natural form exists in ample quantities across a number of countries including Chile, Peru and Bolivia, ensuring the required level of extraction is key. With many commentators predicting a ‘lithium gold rush’ over the next few years, Tesla should act now to engage with Governments and mining companies, providing a commitment in terms of investment and demand to give them the time required to step up production. Building a strong relationship with suppliers early on will ensure a steady supply of lithium and eliminate the risks of inflated costs caused by increased market demand.

Perhaps even more significant is the ability of Tesla to source the required quantities of cobalt, which is utilised in lithium-ion batteries as lithium cobalt oxide. At present, over 40 per cent of the world’s cobalt is extracted from the war-torn Democratic Republic of Congo, a region blighted by political unrest. As such, the price of DRC’s cobalt is unstable and dictated by current levels of conflict.

Even a small fluctuation of five per cent in raw material costs would be enough to put significant pressure on Tesla’s cash-flow, therefore, the firm should act to employ a dual-sourcing strategy to minimise the impact of geo-political volatility on its bottom line. At present, researchers are exploring alternatives to cobalt, with manganese cited as a potential substitute. In the long-term, the inclusion of more easily sourced components should be a priority.

Another question which has been raised regarding the popularity of Powerwall in the UK, is the unit’s cost. Although the price of the product which will likely be set at £5000 is seen as modest by some, experts have predicted that installation of the battery could almost double this amount.

European governments have long encouraged households to go solar, and many UK residents already sell back excess solar energy to the national grid, which when compared to battery storage currently proves a much more cost-effective arrangement. However, it is thought that feed-in tariffs (the rates at which energy can be sold back to the grid) are likely to decrease over time, and in some areas of the country such as the South West, the grid’s capacity for external connections has been reached, with the infrastructure required to remedy this not to be installed for three or four years.

Again, the remedy to these extraneous variables lies within the production process. The cost of a solar cell is a fraction of what it was ten years ago and lithium-ion batteries have halved in price over the last five years. For the Powerwall to be widely adopted by the majority of solar users over the long-term, efforts must be made to further reduce unit price.

Tesla has put into motion the construction of a huge ‘Gigaplant’ in Nevada, which is due for completion in late 2016 and will provide capacity to make Powerwall batteries for the US market. This model is unlikely to succeed in the UK as creation of this expansive facility relied upon significant tax breaks from the US government, thought to equate to $1.3 billion, the likes of which are not readily awarded in Britain.

For success in the UK, Tesla should aim to establish a lean and fully-automated production process, one which has been well utilised by the automotive industry. By ordering components in high quantities from trusted suppliers, parts can be sourced at nominal margins, further reducing end cost.

The Powerwall lithium-ion battery is an innovative product with the potential to aid the increased pick-up of solar energy in the UK. If the product’s popularity in the US is anything to go by, it is likely that its launch in Britain will garner a similar amount of success. However, for the Powerwall to be effectively introduced on an international scale, Tesla must work to fully understand the intricacies of the UK and other target markets. In particular, the firm must be mindful of local incentives surrounding the use of renewable energy, including feed-in tariffs in the UK which enable the sale of excess solar power, thus minimising the financial benefits of energy storage.


ABOUT THE AUTHOR

Phil Bulman is a consultant at supply chain and procurement specialists Vendigital, which works with FTSE 250 and FTSE 100 companies, as well as some mid-tier businesses. The firm’s specialists provide detailed support across a host of established and emerging industry sectors from aerospace and automotive, and manufacturing to media. From hubs in Europe, America and Asia, its dedicated teams of experienced practitioners assure a globally-consistent service and supported software solutions, backed by solid, on-the-ground knowledge.

FURTHER INFORMATION

Vendigital: www.vendigital.com

 

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