Tesla Suspends Battery-Pack Business

Tesla Motors is putting its battery business on hold for now to focus on producing its Roadsters, company officials said.

"Tesla Motors is doing a lot of different kinds of businesses, including the battery business, but today it's all hands on deck shipping cars," Martin Eberhard, president of technology and former CEO of Tesla Motors, told Greentech Media.

While the company is best known for its speedy sports car, the Roadster, it also had planned to sell battery packs to Think Global, a Norwegian electric-car company, for additional revenue.

Some analysts had said they liked the business model of selling batteries in addition to cars, anticipating that the car business might be farther away from mainstream-market volumes.

Now the deal seems to be off.

"Tesla said they would be happy to provide the battery, but in six months, perhaps, and we said we can't wait," said Think CEO Jan-Olaf Willums.

Willums said he first heard there might be delays in delivering the battery packs a few months ago. The news has affected Think "badly, obviously, so we are instead finding deals with other people," he said.

Think already has signed agreements with Indianapolis-based Enerdel and France-based Groupe Dassault to develop battery systems for Think's cars. The company also is in the process of signing a development deal with A123Systems, a battery startup in Watertown, Mass., he said.

All three suppliers are working on iron-phosphate versions of lithium-ion batteries for this deal, said Willums, who added that the technology that performs the best will be selected for a final contract.

With the three contracts, Think will have as many batteries as it expected to get from Tesla, he said, adding that, with the iron phosphate, "we think they will be safer than what Think has."

But Tesla is still a possible partner, he said. "We haven't decided whether we want to drop the Tesla [battery pack] or if we want to keep going and do it when they have time."

Think began producing cars in February and expects to make 500 cars this year, which it will sell to partners to get feedback. The company plans to ramp up to several thousand cars next year and 20,000 cars annually by 2009.

Willums said it isn't behind schedule yet, but that the timeline to expand production might change, depending on how the new battery packs perform in tests.

Think's new battery partners are scheduled to deliver batteries for testing in spring, and the length of the tests will depend on how the batteries perform, he said.

While he said he wishes Tesla had told Think earlier that it wouldn't be able to deliver the batteries on time, Willums said the move makes sense for Tesla.

Bringing the battery prototypes to the production phase would have cost the company a good bit of money, he said, and after announcing mass production of its Roadster would be delayed until 2008, it made sense for them to focus on the car.

"From their [business-strategy] point of view, I have a full understanding," he said. "From a contractual point of view, it's not so good, but we're all in the same boat and we were flexible enough to find some other partners."

Elon Musk, a Tesla investor and board member, said the company has not abandoned Think or the powertrain business at all.

"It is simply a question of focus being on the Roadster right now and, to a lesser extent, model 2 (codenamed White Star)," he said, referring to the four-door sedan expected to cost half of the $89,000 price tag of the Roadster when it comes out in 2008.

"The technical aspects of the battery are solved, but there is still a lot of work remaining to make battery production cost-efficient," he said. "There is no point in providing Think with an overly expensive battery."

Thilo Koslowski, a vice president and lead automotive analyst with Gartner, said Tesla is doing the right thing by focusing on getting the car right and out in a meaningful way.

"Tesla is a car manufacturer first of all, and that's the reason it achieved so much attention and interest," he said. "It's cool, it's seen as robust and it's got a good design."

It makes sense for the company to focus on the parts of its business that most differentiate the brand, he said.

"The battery is not something that will be a huge differentiation or that the company needs to focus on in-house," he said. "As in consumer products, the battery is not seen as something that makes the product distinct."

In the future, the company might decide to turn its attention back to batteries or partner with another company for the batteries, Koslowski said.

He pointed to Better Place, which raised $200 million for its plan to lease easily removable batteries for electric cars and set up battery-charging and replacing stations around the United States (See In Brief: New Choices At the Pump).

VantagePoint Venture Partners, which invested in Tesla, also invested in Better Place.

Mark Huang, a former senior vice president at GE Energy Financial Services, also said Tesla's core competency is car manufacturing.

"It's hard to do it all, the battery pack and the car," he said. "There is some significant engineering work that needs to be done for both."