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hey ivan from the eb stock channel here and welcome back to another episode during the conference call elon musk made it clear that tesla was self-constrained and my question is where is the bottleneck and how do you fix it to help answer that question i've got rodney hooper from rk equity back on the show but before we begin thank you to all the patreons to make these episodes possible and as always all content is simply our opinion and not financial advice rodney really appreciate you coming on the show to answer a few quick questions so there was one aspect of earnings that i really wanted to or the conference call that i really wanted to run by you elon was talking about the constraint of battery cell output the thing to bear in mind is is that there is fundamentally a constraint on battery cell output the main reason we have not uh accelerated um new products is like for example tesla semi is that we simply don't have enough cell script like we we if we were to make the semi like right now uh which we could we could easily go into production with a semi but we would not have enough cells for it right now um we will have cells group in our cells for semi when we were producing um the tesla 4680 in volume um but for example semi would use typically five times the number of cells that a car would use um but it would not sell for five times what a car would sell for so uh it kind of doesn't make it would not make sense for us to do the semi right now but it will absolutely make sense for us to do it as soon as we can um address these cell reduction constraints and my question was where is this bottleneck is it not enough battery cell plants or is there not enough uh raw battery materials to feed them i think uh for now it's probably the bottleneck is more at the cell level and i think coming up it's going to be the raw materials which is what we've discussed previously so i think drew discussed the ramp up of the 4680 production so they said they'll be able to meet mass production this year but it very clearly looks like they are steering expectations for giga berlin and austin into 2022 in sort of a decent ramp up so when you looked at the cell production i noticed it clearly said 200 gigawatt hours of capacity i think probably by the end of 22 and but they would have a hundred gigawatt hours of actual cell capacity uh next year which is enormous i have to tell you i mean that is that on its own if it's all high nickel for the semi the sabo and for the long range model y then you're talking you know nearly uh 85 to um to 90 000 tons of hydroxide which is bigger than the entire market in 2020 but i i noticed someone tweeted and it looked like elon musk tweeted back it seems that cell the cell output is the issue i know they've got panasonic helping looking at the 4680 and elon musk said before the machine that makes the machine and what have you and scaling so i think it's specifically scaling the 4680 production for them because when you look at the cyber in the semi and you and i discussed this before battery day the most critical thing though you know the semi is a very uh energy density and weight sensitive uh you know a truck it needs the lightest weight with the highest energy density batteries so it has to have the 4680 and the cyber i think as well so they they need they need the 4680 up and running and scaling and i guess running smoothly and producing at a low enough price to keep margins you know the the one other thing is i don't know if you notice but it looks like you know they said 50 growth so they're kind of guarding 750 800 now as production i thought higher but they're definitely cooling off expectations coming out of berlin and austin for this year yeah i guess with a new factory a lot of new processors and new battery cells i mean it's probably better to sandbag and temper estimates for the time being it is but you know when you look at the flowers it looks to be very impressive so to my mind it looks to be ready to go by mid-year i mean if you look at where we are in january and how much equipment and stuff's going in so we don't know i i would say it's the production of the 4680 cell that is the bottleneck i don't know if they could temporarily get cells from lg you know or you know exporting out of china to sell into europe but if they're going to get brandenburg up and running my guess is that there's some implications around cell ramp there yeah elon did mention that you know they would want to collaborate with the other you know cell manufacturers lg panasonic and take as many of their cells as possible in fact i want to be really clear tesla wants to increase purchases from sales suppliers and we've been very clear with our cell suppliers whether it be catl or panasonic or lg that we will take as many batteries as they can produce so and we urge them to increase their uh production and we will buy as much as they can send to us yes so so that makes absolute sense if you're going to ramp shanghai to the max to say 500 or 450 500 this year and then you can use catl's lfp for the short range and you can use lg i think they're going to put 811 into the model y and then export those but and you could possibly even once brandenburg's up and running you could um you could use lg cells to start in those in those cars but then i guess you're going to put lg under the pump to be producing more but their aspiration was their own and the cyber and the semi that definitely needs the 4680. yeah so the one thing i thought was quite interesting uh ivan is if you think about it um if you are going to then have in 2022 the sabre ramping and the semi and then you've got the model y and the model 3 elsewhere if you think that tesla has recently extended its cell contract with panasonic and it wants to use lg if they actually produce 100 gigawatt hours of cells in 2022 that's about 1.25 million cars what is that telling you of their order expectations if they can produce for enough for 1.25 million cars and they will keep buying from panasonic and lg what is their expectation of production in 22 i i don't know you tell me but it looks like quite a big number definitely now i was wondering if you were sitting on the board at tesla and you had five or ten billion dollars to spend to alleviate this bottleneck in both cell manufacturing and the battery raw materials how would you spend five to ten billion uh that's an interesting question because i think you know it's not as if um throwing i don't know if throwing more money at the 4680 production process can change anything i'm sure they've got the best minds and the best people working around the clock on that so once you have that sort of refined i'm assuming they could re-roll and you know copy-paste that formula into shanghai you know in into any of the locations that they wanted to produce their own cells i guess that could take some money but i don't know it's that much for me could i build more battery plants yes so but i'm saying once you have the formula for producing mass producing the 4680 cell you can copy paste that and they already have they raised 12 billion last year so i'm not sure what they're going to do with that 12 billion you've already got money in hand but ultimately and maybe i i you know i sound like a broken record and you know man the man with a hammer the world's a nail but if it looks as if they are you know if you really about the business of selling 20 million cars in 2030 you know we say this over and over again and you're starting to see prices move now you need to sort out your raw materials and what would you do say again you had 5 or 10 billion how could you invest that or maybe not even you know use that 5 or 10 billion but you know do the streaming deals have seen to borrow money cheaply and give that to some of these rural battery material suppliers to help them out to boost production now to set you up in two three years what what would you do on that front yeah so so they they take a different they take different approaches so it's no secret you know tesla and other oems and cell manufacturers and cathode guys are all running around looking for off-take contracts with all of the raw material suppliers so the penny has dropped i think tesla's sort of modis operandi has been if i sign an off take the share price runs and then the company can fund itself so you look at someone like piedmont they did the deal the share has gone up dramatically they've raised some money i guess they can raise more to the extent that um that that is not enough i'm not sure if you can change it so you know i think tesla is looking at doing you know they already are looking to build a cathode plant and a hydroxide plant in in the states so i guess they could flesh that out more but again there's no point throwing money at something until you have refined the process in the same way that once you've got the 4680 cell format right then you can roll it out everywhere in the same way once you have figured out if you want to eliminate some of the hydromet stages in nickel processing once you've solved that riddle then they can throw the money at scaling but i guess you can't chase it any faster than you can chase it until you've solved the formula a bit like i'll throw salt on the clay and nevada and produce lithium if you can do that then you can scale that so i i don't know that that raising that money would um that there's an obvious place to spend until you have uh solved the riddle and crack the codes as to what you want to do and it look we know this is tesla right look at the casting machines and all the rest you know i'm sure they've got already got enough capital and tons of people in ohio to chase this so it's now just a question of getting it done well let's wrap up with that and yeah i guess we'll talk soon so another great insight from rodney and let me know what you guys think why is tesla cell constraint and how should they alleviate that look forward to seeing your responses until then i'll see you guys soon