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. If you enjoyed this video, please consider
supporting me on Patreon with the link at the end of the video. I am also active on Twitter. You can find the details in the description,
and I look forward to hearing from you. A special thanks to Jason Bishop, Jason Kapadia,
Euler Gamma, Kevin Bassalleck, Justin Charron, Fantômas for your generous support of the
channel, my YouTube members, and all the other patrons listed in the credits. I appreciate all your support, and thanks
for tuning in.
Finally getting into the range of capacity we need to be seeing announced. The batteries must flow…
This guy speaks slower than Eckhart Tolle. 1.75x playback is the sweetspot.
hello mods, let me know if you want me to change flair, or anything else