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Tesla ‘losing billions of dollars’ due to supply chain issues isn’t its only problem

The news: Tesla CEO Elon Musk is worried about the company’s future as supply chain disruptions and coronavirus pandemic lockdowns prompt mention of possible bankruptcy.

  • Musk said new gigafactories in Austin and Berlin are “losing billions of dollars” as operating expenses accrue and production stalls due to EV battery parts stuck at a port in China, per Insider.
  • “Both Berlin and Austin factories are gigantic money furnaces right now,” Musk said in an interview with Tesla Owners Silicon Valley. “There’s a giant roaring sound, which is the sound of money on fire. … There’s a ton of expense and hardly any output.”
  • Citing a “super bad feeling” about the economy, Musk last week announced a 10% cut of salaried staff over the next three months, per Inside EVs.
  • Tesla’s adjusted Q2 earnings will fall to $2.5 billion, down from its record $3.7 billion in Q1, per CNN. The automaker earned $1.6 billion in Q2 2021.

The rocky EV road: Tesla isn’t the only EV-maker facing serious troubles. Others, like Rivian and Ford, have also expressed supply chain pain.

The gas price spike has resulted in unprecedented consumer interest in EVs, but meeting demand is increasingly becoming a stumbling block for the sector.

  • While the troubles might not lead to bankruptcy, Gordon Johnson of GLJ Research told CNN that the risk is there because of how dependent EV makers are on China.
  • China’s zero-tolerance COVID policy has weighed heavily on companies like Tesla, as just a few cases shuttered factories and ports.
  • While lengthy waitlists for EVs help give automakers a better demand forecast, it’s also indicative of struggles to capitalize on consumer interest.

The bigger picture: Stymied production from port closures is one issue, but even when that particular problem abates, the shortage of battery components will continue to plague the industry.

  • The average cost of key minerals used in batteries, like cobalt, nickel, and lithium, is about $8,255 per vehicle—a 140% increase from the $3,381 cost in March 2020, per Insider. The raw materials cost is now 125% more than combustion vehicles.
  • The end result is more expensive EVs that significantly reduce the buyer pool, further diminishing automaker earnings.
  • “As price rises, the number of people that can afford a [Model] S or X doesn’t drop by a little, it drops by an order of magnitude,” Musk said.

Three solutions: The raw material problem isn’t inevitable, but given the minerals’ finite supply and geopolitical challenges, the situation could get worse if action isn’t taken.

  • Doubling down on battery recycling efforts would reduce the need for mineral exploration and mining.
  • Developing new battery technologies that don’t use the most expensive minerals will help make EVs cheaper.
  • Shifting resources away from developing luxury models to mass market ones could help automakers stay afloat and boost EV adoption.