2012 Tesla Model S
Tesla is on a roll right now, with 14,000 of its all-electric Model S luxury sedan on the road and its stock at record highs.
If it achieves its planned production levels--21,000 cars this year, perhaps 40,000 by 2015--its voracious appetite for lithium-ion battery cells will only increase.
The massive scale of cell purchases by Tesla Motors [NSDQ:TSLA] has already boosted global production levels.
It may soon use as many '18650' lithium-ion cells itself as the entire industry produced before the Model S went into production a year ago.
But ensuring adequate battery supplies in sufficient time to expand car production is absolutely key to continuing Tesla's growth.
1914 Ford Model T
Scale is crucial
From the time of Henry Ford, a key attribute that has characterized the auto industry is scale. Each car contains thousands of parts, most requiring their own assembly lines, all of which come together in massive factories that assemble the finished vehicle.
When you build thousands of cars a day, the sheer industrial might and logistical prowess can be mind-boggling.
CEO Elon Musk has noted that some suppliers tooled up based on projections that Tesla would build no more than 3,000 Model Ses over the car's lifetime. Instead, that's now only six weeks' production.
In the previously non-automotive lithium-ion battery industry, Tesla may be having its single greatest impact.
Tesla's big battery
The Nissan Leaf is the best-selling electric car in history: From December 2010 through mid-July 2013, Nissan sold more than 71,000 of them globally. With a 24-kilowatt-hour battery, that works out to a total of about 1.7 million kWh over 32 months of production.
In contrast, Tesla is on pace to sell 21,000 Model S sedans this year.
Tesla Motors - Model S lithium-ion battery pack
Based on user data from the Tesla Motors Club forum showing that less than 30 percent of buyers opt for the entry-level 60-kWh battery, we can conclude that in just 12 months of production, Tesla will have deployed more than 1.6 million kWh worth of batteries.
In other words, Tesla has soaked up almost as much battery capacity in a year as Nissan has in almost three.
This underscores a fundamental truth: Tesla's batteries are a lot bigger than the Leaf's, or those of any other electric car.
As a result, Tesla is about to have an outsized impact on the battery industry as it scales up its car production over the next few years.
Tesla is the only carmaker to use small "commodity" 18650 cells for plug-in vehicles; Nissan, General Motors, BMW, and others use larger-format cells, which contain up to 10 times the energy in each cell.
(Tesla also assembles battery packs in low volumes for other makers, including Toyota and Daimler, that use the 18650 cells.)
Already a major player
This reality has already shaken up the consumer battery industry.
Panasonic, Tesla's primary battery supplier (and investor), went from a loss of 2 billion yen in the second quarter of 2012 to a profit of 4 billion yen in the most recent quarter--largely on the strength of the voracious increase in demand from the Model S.