Tesla Reportedly Pursuing 10 Percent Stake in LG Energy Solution

According to anonymous sources in Korea, Tesla is currently discussing the acquisition in LG Energy Solution, which is set to be spun off from parent company LG Chem. The move is apparently motivated by a desire to secure a reliable source of batteries and own a stake in an existing supplier. Although these reports are not official yet, this may be another move in Tesla’s attempts to ensure the quality of its electric vehicles by controlling as much of its supply chains as possible.

“It’s quite early to tell if Tesla has an actual plan to acquire a stake in LG Energy Solution. But given Tesla’s growing attempts at cost cuts and moves in producing round batteries, it does make sense that Tesla would explore an opportunity to buy a stake in LG Energy Solution,” said one anonymous source.

LG Chem is a longtime supplier of batteries to automobile manufacturers like Tesla and General Motors. Its global share of the market for EV batteries recently surged from 11 percent to 25 percent, which vastly outpaced competitors like CATL and Panasonic. A spokesman stated that it is the “right time” to spin off the battery manufacturing side of the business now that batteries for electric vehicles are becoming more profitable.

Tesla does have plans to make battery manufacturing part of its operations at factories like the upcoming Terafactory, which will boast a higher manufacturing capacity than its existing Gigafactories. Taking a stake in LG Energy Solution will help it secure additional battery production capacity without having to entirely rely on third parties for manufacturing. This will help remove some of the risk of a third party turning in subprime work or actively sabotaging the product.

This can especially be a concern with imported products from countries that may not have the same consumer protections that the United States does. For instance, a 2012 case of poisoned dog treats that could cause kidney failure in dogs was eventually tracked down to a disgruntled employee in a Chinese plant that made them. Even in cases where no sabotage is intended, inspectors are often stretched too thin to be effective with preventing harmful or defective imports from slipping through the cracks and brands like Tesla could take the same hit to their reputation as Purina did in the dog treat case if a third party is sending out subpar parts.

Tesla is already addressing some of these issues by discussing the sourcing of metals with mining companies based in North America and Australia. It is also reportedly building a lithium refinery in Texas. This may seem like a lot of effort being put into the supply chain side of things, but CEO Elon Musk once saw a multi-million-dollar rocket blow up because a part provided by the United Launch Alliance failed. So from the perspective of someone accustomed to working in industries where mishaps can get expensive, it makes sense to at least own a stake in one’s suppliers.

Tesla has not yet made an official announcement about any possible acquisition of a stake. However, there are hints that it may want to diversify its sources of batteries as part of its attempts to bring down costs in the wake of its announcement of an upcoming $25,000 model that will be its cheapest yet. The acquisition of a stake simply means that it won’t have to worry about the risks of outsourcing its manufacturing.