Tesla Looks To Get Ahead Of Chip Shortage With Advance Payments, Mulls Buying A Plant: FT

Tesla Inc TSLA is exploring options to stay ahead of the ongoing global chip shortage, including making advanced payments and buying a fabricating plant, the Financial Times reported Wednesday.

What Happened: The Elon Musk-led electric automaker is in talks with industry operators in Taiwan, South Korea and the United States to secure chip capacities, FT noted — citing people familiar with the matter. Most of its new generation mass-production chips are made mainly in Taiwan and South Korea.  

According to the report, in an unusual practice, some contract chipmakers are now accepting advance deposits from large customers to guarantee certain orders at a fixed price. 

Contract chipmakers have traditionally been flexible with fulfilling various customer orders — big or small — to ensure a stream of profit.

See also: How to Invest in Tesla Stock

Talks to buy a fab facility are in the early stages and such an acquisition may be tough given the high costs involved, the report said. A semiconductor lab needs up to $20 billion investment.

“They will buy capacity at first, but they are actively considering buying their own foundry,” Seraph Consulting CEO Ambrose Conroy said, as per FT.

Seraph Consulting is a supply chain consultancy for Tesla.

See Also: Intel CEO Expects Global Chip Shortage To Last Another Two Years

Why It Matters: The ongoing global chip shortage has forced automakers across the world to halt production lines, make their most profitable models first. The shortage is also hitting consumer electronics companies including Apple Inc AAPL.

The lingering shortage has forced suppliers and chip equipment makers to recommend updating the traditional just-in-time auto supply chain model first adopted by Toyota Motor Corp TM. 

Taiwan Semiconductor Manufacturing Co TSM and Applied Materials Inc AMAT last week said the industry needs to modernize its “Just-in-time” supply chain practices to avoid a similar semiconductor shortage as the ongoing one in the future

Price Action: Tesla shares closed 2.39% higher at $619.13 on Wednesday.

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