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Tesla secures upper hand over suppliers

Tesla Motors, upbeat on soaring orders for its new $35,000 full-electric family sedan Model 3, seems to have already secured an upper hand in its upcoming talks with suppliers.

Since the much-hyped prototype was unveiled in April, preorders have surged to 276,000 in just three days. Deliveries will start late 2017 but long lines at Tesla stores were reminiscent of the crowds at Apple stores for early models of the iPhone.


Now parts makers, especially those making the key parts such as batteries and display panels, are paying keen attention to partnering with the iconic EV maker.

“Receiving preorders is a clever tactic for Tesla not just to boost the market and elevate its brand image but also to gain an upper hand in the planned talks with suppliers,” said an official of a local parts maker who wished to be unnamed.

“Because the carmaker has secured strong orders, it would seek more favorable deals, putting the suppliers at a disadvantage.”

Considering a supply deal within the automotive industry is usually signed a year before the first shipment, supply deals for the Model 3 are expected to be finalized later this year. And related supply rumors are already piling up.

According to a news report last week, Tesla plans to use display panels from LG Display for the Model 3. Tesla cars usually have a gigantic tablet-like information screen on the center console and the report said the carmaker is seeking a new supplier for a 15-inch screen for the latest model.

A spokesperson at LG Display’s Seoul headquarters declined to confirm the deal.

Other company officials contacted for this report also declined to comment on the ongoing talks with Tesla and asked not to be quoted by name, citing the sensitivity of the issue.

Industry watchers predict no immediate impact from the Model 3 on Samsung SDI and LG Chem, the Korean battery-makers that have continued supply talks with Tesla for years.

The carmaker has already teamed up with Japan’s Panasonic to build a large-scale battery factory, called Gigafactory, by 2017 to coincide with the launch of the Model 3. The plant is expected to reach full capacity by 2020.

“The planned Gigafactory would have no problem meeting the current orders for the Model 3. Tesla would not diversify battery suppliers immediately unless there is a drastic surge in orders,” said Shin Jung-gwan, a senior analyst at KB Securities.

The analyst pointed out Tesla could use batteries from other suppliers only for price benefits.

In October last year, Tesla signed a contract with LG Chem for battery upgrades to the company’s first car, the Roadster, which has ceased production now. At the time, the company offered a $29,000 upgrade to Roadster customers to replace the battery.

The deal, despite its modest size, raised speculation that LG Chem could secure more orders for other Tesla models. So far, no new announcements have been made.

“It was a rare decision for Tesla considering Panasonic was its sole battery supplier. I assume LG Chem could supply batteries at a lot cheaper prices by taking advantage of its U.S. plant,” Shin said.

In the meantime, Korean battery-makers may have an opportune time. Tesla CEO Elon Musk on Friday hinted the company was “rethinking production planning” due to the soaring orders for Model 3.

Cairn Energy Research Advisors predict Tesla could ship only 76,860 Model 3 cars by the end of 2018, way short of fast-growing orders reaching almost 300,000. Applicants may have to wait for three or four years to receive their car. 

 By Lee Ji-yoon (