Earlier this year, Tesla announced it was making a commitment to source raw materials for its massive new battery facility locally (i.e., in North America). Supply Chain Digest did a great job covering all the details of the story in a recent article. If Tesla is able to implement its vision for local sourcing, a procurement strategy that SCD notes the automaker is embarking on even before it builds its mega-battery producing facility, it will realize many potential benefits by shortening the raw materials supply chain.
SCD notes that the raw material demands will be huge – truly! The forecast volume of the plant is 500,000 car batteries annually, a sum that is off-the-charts high in raw material demands if you consider that “each battery is something like the size of a piece of plywood, a few inches thick, and weighs about 1,000 pounds.”
Here are some additional highlights on the benefits from the SCD article:
- “The location of the new plant has not even been determined yet, but sourcing decisions are already being made ahead of site location and construction.”
- “The company believes it can source all the graphite, cobalt, and other materials it needs without going outside the continent.”
- “The announcement relative to North American-only sourcing is certainly not without risk. To pull it off, Tesla may need to turn to graphite mines in Canada that have yet to be built. The company may also require supplies of cobalt that exceed existing Canadian output and thus need to look at prospective suppliers in states such as Minnesota and Idaho.”
The SCD article also explores a range of environmental and related CSR considerations for sourcing raw materials locally (which I’ll explore in a separate post). But perhaps the most important reason for localizing supply has nothing to do with supporting raw material suppliers that adhere to more environmentally friendly mining practices. Rather, perhaps working with localized sources of supply will give it a huge relative advantage in reducing supply risk. It would also potentially increase risk for competitors by locking up North American raw material capacity and forcing others to continue to work with mining firms in unstable regions in developing markets.