Tesla Supplier LG Chem To Double China Output To Fulfill EV Maker's Growing Hunger For Batteries: Report

Tesla Inc TSLA supplier LG Chem is planning to double its battery cell manufacturing capacity in China to meet the electric vehicle maker's demand, Reuters reported Tuesday.

What Happened: The South Korean battery maker reportedly plans the move to keep up with Tesla’s growth in China, which is the world’s largest car market.

LG Chem will supply battery cells from its Chinese and Korean factories to Tesla’s manufacturing sites in the United States and Germany, two people with the knowledge of the matter told Reuters.

“Tesla simply doesn’t have enough battery cells,” revealed an unnamed person — adding, “So LG Chem is going to more than double China output.”

LG Chem added production lines to its South Korean factories this year to meet the demand arising from Tesla’s U.S. plants, according to unnamed sources of the newswire.

“We’re continuing to expand capacity for cylindrical battery cells in response to growing demand from automakers but we can’t comment on specific customers,” an LG Chem spokesperson said.

Why It Matters: LG Chem’s battery cell business became an independent unit on Tuesday. The company plans to triple the capacity of cylindrical cells to 60-gigawatt hours by 2023, as per Reuters.

Tesla has also reportedly asked Panasonic Corporation PCRFY, which supplies batteries to its U.S. plant to also supply the Shanghai factory.

Strong demand for Tesla’s vehicles is reportedly a positive development for LG Chem, Panasonic, and China’s Contemporary Amperex Technology Co Ltd.

LG Chem will invest $500 million over 2020 to raise the production capacity of 21700 cylindrical battery cells used by Tesla by 8 GWh at its Nanjing plant, according to the local government.

Reuters sources revealed that LG Chem’s plan involves raising the number of production lines from eight to 17.

LG Chem and CATL supply battery cells for Model 3 vehicles, while the Korean manufacturer is the sole supplier for the Shanghai-built Model Y SUVs.

Calculations made by Reuters indicate 17 lines at Nanjing would be able to supply 323,000 vehicles a year as each LG Chem line is able to make 7 million cells a month and each model uses 4,416 battery cells.

Price Action: Tesla shares closed 3.1% lower at $567.60 on Monday and rose 4.32% in the after-hours session to $592.10. 

Related Link: Elon Musk Says Tesla, Suppliers Put Together Aren't Enough To Fulfill EV Maker's Battery Needs