Overtaken

German fears after covert look under hood of Tesla

FILE PHOTO —  The body of a Tesla Model S is lifted by an automated crane at the Tesla factory in Fremont
More than the sum of its parts? Source: Reuters

For all the accusations that China is trying to steal German knowhow by buying up technology firms (think Kuka, Aixtron, etc), it seems that the Germans are not above a little industrial espionage themselves.

Engineers working on the orders of German carmakers procured several Tesla Model 3 cars on the gray market, shipped them back to Germany and dismantled them piece by piece to study the US e-car upstart’s technology.

The experts made several shocking discoveries. Most worryingly for the likes of VW, Daimler and BMW, analysis of the Model 3 shows it’s likely to be hugely profitable, and secondly, they think Tesla has developed a new battery that uses only a fraction of the hard-to-source cobalt found in conventional batteries.

The Model 3, which is intended to be the first truly mass-market all-electric car, will retail for between $35,000 (€30,000) and $78,000. But the cost of its material will amount to just $18,000, with production adding another $10,000, according to reports seen by the German business magazine WirtschaftsWoche, a sister publication of Handelsblatt.

German carmakers regard California-based Tesla as a huge threat.

“If Tesla can, as they plan, produce around 10,000 vehicles a week, the Model 3 will could make a massive contribution to their bottom line,” said one production engineer, who was involved in the reverse-engineering and testing operation.

The operation was carried out on the quiet. According to information seen by WirtschaftsWoche, German automakers bought no less than four Model 3 cars on the gray market. The sellers seem to have been former Tesla employees, who were allowed to order the vehicle earlier than the general public. The price of gray-market Teslas is estimated at between $100,000 and $130,000.

The goal was not only to discover the technical secrets under the hood of the Model 3, which has already seen more than half a million pre-orders in the US and Europe. Just as important were the economic calculations of materials and production costs.

German carmakers regard California-based Tesla as a huge threat, both because of its technology and popularity. Last year, the firm’s upmarket model, the Model S, sold better in Europe than its fuel-powered top-end rivals the Mercedes-Benz S-Class and the BMW 7-series. All big German car manufacturers, including Audi, BMW, Mercedes, Volkswagen and Porsche, are investing heavily to bring their own all-electric cars to market.

But they are far behind Tesla, and still struggling to shake off the Dieselgate scandal. The widening production gap between them and the US firm is a particular worry. The Tesla Roadster went into production in 2008; Audi will release Germany’s first all-electric car, the e-tron quattro, by the end of the year.

Tesla’s expertise is also giving the Germans sleepless nights. Laboratory analysis carried out on the Tesla Model 3, seen exclusively by Wirtschaftswoche, shows that Tesla appears to have reduced the amount of cobalt used in its lithium-ion batteries.

“Cobalt is so difficult to source on the world market right now.”

Sven Bauer, CEO, BMZ, Germany's largest independent battery producer

This could allow for substantial cost savings. Cobalt is a key ingredient in li-ion batteries, the standard e-car battery type. Currently, large quantities are needed to make powerful, long-lasting batteries. But around 60 percent of global cobalt reserves are located in the Democratic Republic of Congo, where supply chains are difficult to manage and the mineral has been associated with child labor, warlordism and conflict. This has been made worse by spiraling demand for cobalt in e-car manufacturing, which has seen its price triple in the past 18 months. It is expected to continue to rise.

To avoid supply bottlenecks, individual companies, including Volkswagen, have attempted to negotiate direct deals with individual Congolese mine-owners. Battery manufacturers are also trying to develop new production methods which would minimize cobalt usage.

But here Tesla seems to have made genuine technological progress. Together with partner Panasonic, it seems to have found a way to sharply reduce cobalt content in Model S batteries, from the usual 8 percent to just 2.8 percent.

“If they have managed that, it would represent a huge competitive advantage for Tesla. Cobalt is so difficult to source on the world market right now,” said Sven Bauer, head of BMZ, Germany’s largest independent battery producer.

However, few of these advances will mean much if the company cannot iron out its notorious production problems, which have slowed output to a crawl in the company’s US facilities. Until recently, customers who had pre-ordered a Tesla S were warned of delivery delays of 12-18 months. But this month the US company announced production increases, suggesting the worst of its problems may be behind it.

A version of this article originally appeared in the business magazine WirtschaftsWoche. To contact the author: online@wiwo.de

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