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Questions:

1.What is the Aim of Tesla Gigafactory?
 
2.What is the Current SCM Structure of building lithium Ion Batteries?

3.How will Tesla Disrupt the Current Supply Chain Management of Lithium ion Batteries?

4.Do you think Tesla will Succeed its mandate?
 
 

Answers:

Introduction:

Tesla Motors with its initiative of establishing the environment friendly Gigafactory to produce lithium ion batteries has taken a great step towards developing technology that will sustain environment in future. At present, the factory is under construction at Tahoe Reno Industrial Center, U.S. This construction running near Nevada and the Nevada governor expects to enjoy a good amount of revenue in two decades of its production ("Tesla Gigafactory | Tesla Canada", 2017). Lithium ion battery cars are one of that technological advancement that promises to save the rapidly decreasing non-renewable resource of fuel as well as looks promising as an alternative technology. Tesla Gigafactory in Nevada started its first production in 2016 of Powerpacks and Powerwalls in a meager quantity while within some months in 2017 it has successfully commenced its mass production of battery cells. Gigafactory 1 in Nevada has been designed with the aim of minimizing the cost of production and the usage of raw materials through the arrangement of vertical integration. Another factory of the same kind Gigafactory 2 is decided to be established in Europe aiding more 1production of eco friendly car batteries ("Tesla Gigafactory | Tesla Canada", 2017).

1.Aim of Tesla Gigafactory

Tesla has several significant and noble aims behind founding the massive Gigafactory spending a huge amount of money. The primary objective of Tesla that has accelerated the establishment of the first Gigafactory in Nevada is to take a step forward to transform world’s automobile industry by replacing the fuel with electric. As hoped by Tesla Motors, the production of lithium ion batteries in the Gigafactory will become that source of the sustainable alternative source of energy ("Tesla Gigafactory | Tesla Canada", 2017). To achieve this mission Tesla needs to produce electric cars in such great quantity that it can push the change of the alternative source of energy into this industry. In order to achieve success in their mission Tesla will require a massive number of lithium ion batteries; probably the entire worldwide production of present time.

The factory, to perform this huge mission, is still under construction and by 2018, Tesla expects to commence its full capacity production. Tesla has joined hands with Panasonic and others who help in developing strategies for the company with the aim of producing batteries at a considerable lower cost. Tesla also aims to achieve innovation in the manufacturing field and desires to reduce waste generation during the manufacturing process. The Gigafactory will help Tesla to locate the entire process of manufacturing under the same roof. Some other of their significant aims are to diminish the per kWh hour cost of battery pack by at least 30 percent as well as to be strengthened by renewable sources of energy; the goal is to achieve clearly zero energy application. Tesla is eager to finish the construction part as soon as possible since they hope to reduce the cost of their presently available batteries dramatically with the help of this giant factory. It is still not very clear how this extreme economization will be possible but it is anticipated that Tesla aims to be decked up with a complete recycling system.

 

2.Current SCM Structure

 Lithium ion batteries are rapidly rising in demand and at present, the Asia dominates the world market in its production. These batteries are largely used in the applications of consumer electronics since these possess considerable high lifecycle and density. The power output of high capacity makes them appropriately convenient to be used in a number of selective automotive applications (Miller, 2014).

The production of lithium ion batteries is thickly concentrated in Asian countries like Japan, China and Korea due to the abundance of lithium ion battery specific component suppliers available here so that these countries together have formed a clustered supply chain particularly focusing on the production of lithium ion battery. Japan, China and Korea comprises of almost 79% of the entire automotive lithium ion battery production while U.S is steadily advancing to get hold of this demanding market presently covering 17% of the total production. Though the Asian cluster of LIB production contributes some advantage at regional level, the benefit in cost is not available outside this cluster.

Lithium is primarily mined from two sources: pegmatite found in hard rocks and brine found in salt lakes.  Now the major sources of pegmatite are:

  • Australia
  • Brazil
  • Canada
  • China

The chief sources of brine are:

  • Argentina
  • Bolivia
  • Chile
  • China and
  • S

To some extent, there exists vertical integration of electrode materials across Asia and production of battery cells. This is likely to help in lowering the cost of production for some certain manufacturers. The LIB materials producing countries of South East Asia are considered as major suppliers of battery materials; the major reason behind this may be the firms of these countries do have the required knowledge of this field as well as the stable financial background to be known as strong and reliable suppliers. The following chart explains the picture of supply chain management of LIB:

 

Total Manufacturing Capacity of LIB (MWh)

 

Percentage share of capacity (%)

Manufacturing Capacity of Automotive LIB (MWh)

Percentage Share of Automotive Capacity (%)

China

39010

51

11240

41

Japan

11978

16

5750

21

Korea

16059

21

4600

17

U.S

4970

7

4600

17

E.U

1798

2

1300

5

Others

2440

3

0

0

Total

76255

100

27490

100

The chart clearly shows that the U.S does not have as strong a supply chain as Asian cluster region and in addition to that, most of the U.S suppliers are comparatively new and inexperienced and hence, are believed to be less reliable ("Automotive Lithium ion battery supply chain and U.S Competitiveness", 2017). Indeed, the production cost of Tesla is to rise if they have to depend on the export service of Asian suppliers. While supporting the expansion of advanced battery manufacturing in U.S the U.S government has provided $1.5B.   

 

3.Whether Tesla will disrupt the Current SCM

It has been seen that the lithium ion battery cell supply is rapidly growing but the growth is concentrated on Asia. If Tesla Gigafactory, based in U.S has to depend on this existing supply chain structure, it will cost a great deal for the company. Hence, Tesla has planned to exceed the global production of lithium ion batteries by 2020 disrupting the present structure of its Supply Chain Management ("Automotive Lithium ion battery supply chain and U.S Competitiveness", 2017).

In order to do so, the company has signed a formal negotiation with Panasonic specially to collaborate with its Gigafactory initiative ("Everything will be recycled.", 2017). According to the agreement, Panasonic is entitled to invest necessary equipments for production of these automotive batteries such as cathode materials, PVDF and SBR Binders, prismatic lids and cans, logistic solutions, electrolyte filling and the like. On the other hand, Tesla is to invest all the utilities, land and buildings required to set up and run Gigafactory 1 (Nykvist & Nilsson, 2015). Tesla is also responsible for providing production equipments indispensible for LIB module and production of battery packs. With efficient management of Gigafactory and procuring the necessary precursor compound materials from other collaborators, Tesla is likely to emerge as world’s largest producer of lithium ion batteries (Barré, 2013).  

Undoubtedly, Tesla Gigafactory shows prominent signs to be the largest and technologically most advanced and exceptional battery producing factory surpassing the dominance of Asian farms. The company is even more keen to accelerate the construction work of Gigafactory because the scarcity of lithium ion batteries has somewhere limited their production of cars (Eisler, 2016).

 


Therefore, apparently Tesla hopes to outreach the 2013 global production of lithium ion batteries by 2020 as mentioned earlier; not only that the company has claimed to produce a huge number of battery packs enough to build 500,000 LIB powered cars by the target year. According to Elon Musk, CEO of Tesla Inc. the automobile company intends to apply one such unique technology that would economize the production of these batteries as well as it has the potential to upset the prevalent structure of Supply Chain Management. Tesla plans to transport the rail cars full of raw materials directly from the mines into the factory and Musk insists that these cars will come out being transformed into finished products of lithium ion battery. The way Tesla has consolidated its battery pack manufacturing process right from the stage of raw materials; it will be hard for any other enterprise to compete with Tesla when it will start its full capacity production (Anderman, 2016).

4.Whether Tesla will succeed its mandate

The construction process of Gigafactory 1 is still a long way to go because more than half of the planned structure is yet to be built. Now, all the claims that Tesla has made for this massive factory and its production capability are still assumptions and have not been proved in real field. Therefore, it is a matter of debate whether Tesla will achieve its claimed target within 2020 and the answer precisely discusses what the elements are that can take the company forward and what can be proved as setbacks (Zeng, Li & Singh, 2014).

One significant possible obstacle can be appeared in the form of bureaucratic mismanagement (Hanley, 2015). This can be avoided if thoughtful and coordinated measures are taken together with the architects, engineers, construction crews and technicians properly led by the managers to reach the end-goal without being diverted from the root aim (Martin, 2014). Due to their intended application of vertical integration, the entire responsibility relies upon Tesla’s management because now they would have to supervise each aspect of battery production instead of just controlling the system built up with producers.

 


Apart from this, Tesla’s huge plantation of Gigafactory has increased their business risk a lot. Tesla is probably the only automobile company who wants to rely entirely on electrical cars in near future. However, the customers are yet to shift completely to these cars of new technology and that the idea of fully electric powered cars has not yet been tested. Besides, in the age of rapid technological advancement it is very likely that the lithium ion concept would also be replaced with something else and the question arises in this context that what then will happen to this huge infrastructure (Lu et al, 2013). Much of Tesla’s success depends on the accountability of its partner Panasonic’s lithium ion technology.

On the other hand, if Tesla can achieve its grand scale of production in Gigafactory, it is almost guaranteed that the upcoming models of cars built under Tesla Motors will be sold at a much-lowered cost (Wang et al, 2014). This gigantic Gigafactory is also believed to be capable of providing Tesla about a bulk of battery pack output that will make Tesla self sufficient in terms of Supply Chain Management. However, the question is not about applying innovative technology but rather the success of the company will be depending on how far and how long they will be able to sustain the management of this gigantic structure. If the organization can execute perfectly what they has claimed for Gigafactory, certainly there will be no looking back for Tesla Motors.

 

References:

Anderman, M. (2016). The Tesla Battery Report: Tesla Motors: Battery Technology, Analysis of the Gigafactory and Model 3, and the Automakers’ Perspectives.

Automotive Lithium ion battery supply chain and U.S Competitiveness. (2017). Retrieved 1 March 2017, from https://energy.gov/sites/prod/files/2015/06/f23/Lithium-ion%20Battery%20CEMAC.pdf

Barré, A., Deguilhem, B., Grolleau, S., Gérard, M., Suard, F., & Riu, D. (2013). A review on lithium-ion battery ageing mechanisms and estimations for automotive applications. Journal of Power Sources, 241, 680-689.

Eisler, M. N. (2016). A Tesla in every garage?. IEEE Spectrum, 53(2), 34-55.

Everything will be recycled.. (2017). Business Insider. Retrieved 1 March 2017, from https://www.businessinsider.in/18-incredible-facts-about-Elon-Musks-Gigafactory/Everything-will-be-recycled-/slideshow/52906827.cms

Hanley, S. (2015). Analyst predicts Gigafactory will reduce Tesla battery costs below $100 per kWh. Ecomento, September.

Lu, L., Han, X., Li, J., Hua, J., & Ouyang, M. (2013). A review on the key issues for lithium-ion battery management in electric vehicles. Journal of power sources, 226, 272-288.

Martin, C. (2014). Driving change in the battery industry (Doctoral dissertation, Nature Research).

Miller, J. (2014). Energy Storage and Battery Advances. Online]. Avaliable: https://www. eei. org/about/meetings/Meeting_Documents/Miller,% 20Jam es. pdf.

Nykvist, B., & Nilsson, M. (2015). Rapidly falling costs of battery packs for electric vehicles. Nature Climate Change, 5(4), 329-332.

Richa, K., Babbitt, C. W., Gaustad, G., & Wang, X. (2014). A future perspective on lithium-ion battery waste flows from electric vehicles. Resources, Conservation and Recycling, 83, 63-76.

Sharma, S. (2016). The Tesla Phenomena A Business Strategy Report.

Tesla Gigafactory | Tesla Canada. (2017). Tesla.com. Retrieved 1 March 2017, from https://www.tesla.com/en_CA/gigafactory

Wang, X., Gaustad, G., Babbitt, C. W., & Richa, K. (2014). Economies of scale for future lithium-ion battery recycling infrastructure. Resources, Conservation and Recycling, 83, 53-62.

Zeng, X., Li, J., & Singh, N. (2014). Recycling of spent lithium-ion battery: a critical review. Critical Reviews in Environmental Science and Technology, 44(10), 1129-1165.

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