Will Tesla License Its Batteries and Autopilot?
Tesla CEO Elon Musk has sparked a lot of conversation on the possibility of Tesla working together with other automakers after a recent tweet in response to a Teslarati article detailing some struggles of German automakers.
Tesla is open to licensing software and supplying powertrains & batteries. We’re just trying to accelerate sustainable energy, not crush competitors! - Elon Musk
The stance is not new for Musk or Tesla. In response to a question during Tesla's Q3-19 earnings call, Musk shared a similar point of view.
"Yeah, I think there's — it would be consistent with the mission of Tesla to help other car companies with electric vehicles on the battery and powertrain front, possibly on other fronts. So it's something we're open to. As a lot of people know, we open sourced our patents so that those would not serve as an obstacle to the adoption of electric vehicles or solar power or stationary storage. And we're definitely open to supplying batteries and powertrains and perhaps other things to other car companies." - Elon Musk
Musk has also been vocal historically about Tesla's willingness to share access to their Supercharger network, provided the counterparty is acting in good faith and helps cover costs and network expansion. As far as supplying, many years ago Tesla collaborated with Daimler on the smart fortwo EV and all-electric Mercedes B-Class and supplied Toyota with the powertrain for the RAV4 EV.
While Tesla's perspective on partnering with other OEMs has been relatively consistent over time, partnering in some areas may be counterproductive to Tesla's mission of accelerating the world's transition to sustainable energy. Take batteries, for instance, which Musk mentioned specifically in his tweet.
On Tesla's Q2-20 earnings call, Musk noted that the biggest constraint to Tesla's growth at any point in time in the future is likely to be somewhere within the battery supply chain.
"The real limitation on Tesla growth is cell production at affordable price. That's the real limit. So that's why we're going to talk a lot more about this on Battery Day because this is a fundamental scaling constraint." - Elon Musk
With batteries being a consistent constraint for Tesla, it is tough to imagine them offering up that supply to others. It would also seem to conflict with another comment Musk made on the call in regards to affordability.
"[We] will not succeed in our mission if we do not make cars affordable. Like, the thing that bugs me the most about where we are right now is that our cars are not affordable enough." - Elon Musk
Supplying batteries to other automakers would seem to be incongruent with the goal of increasing affordability unless Tesla had excess capacity which does not appear to be likely. Tesla would need to capture some margin on the sale of batteries, then the other automakers and their dealership networks would as well.
This is an inefficient go-to-market strategy that results in a less affordable vehicle than one Tesla could produce themselves. Tesla's pursuit of vertical integration is, in large part, to help drive costs lower by cutting out supplier margins from the final price.
Tesla's constraint on batteries may open up possibilities to supply other components, like electric motors, to other OEM's without negatively impacting overall EV affordability or their own growth.
For more analysis on the topic as well as Tesla's second quarter 10-Q filing, cash raise, credit rating upgrade, and Morgan Stanley's price target increases, please see the included video.
Disclosure: Rob Maurer is long Tesla stock and derivatives.