Tesla 2011 Annual Report Download - page 18

Table of Contents
We intend to develop our electric powertrain component and systems business and have secured a $101.2 million loan under our DOE
Loan Facility for the expansion of our engineering and production capability for these activities in our Palo Alto facility. We intend to
manufacture the powertrain components for the Model S and for the Toyota RAV 4 EV at this facility and at our planned Fremont manufacturing
facility.
Supply Chain
The Tesla Roadster uses over 2,000 purchased parts which we source globally from over 150 suppliers, many of whom are currently our
single source suppliers for these components. We have developed close relationships with several key suppliers particularly in the procurement
of cells and certain electric powertrain components. While we obtain components from multiple sources whenever possible, similar to other
automobile manufacturers, many of the components used in our vehicles are purchased by us from a single source. We refer to these component
suppliers as our single source suppliers. To date, we have not qualified alternative sources for most of the single sourced components used in our
vehicles and we generally do not maintain long-term agreements with our single source suppliers. For example, while several sources of the
battery cell we have selected for the Tesla Roadster, Daimler Smart fortwo and Daimler A-Class are available, we have fully qualified only one
supplier for these cells. Any disruption in the supply of battery cells from such vendor could temporarily disrupt production of the vehicles until
such time as a different supplier is fully qualified and there can be no assurance that we would be able to successfully retain alternative suppliers
on a timely basis. Moreover, battery cell manufactures may choose to refuse to supply electric vehicle manufacturers to the extent they determine
that the vehicles are not sufficiently safe.
While we believe that we may be able to establish alternate supply relationships and can obtain or engineer replacement components for
our single source components, we may be unable to do so in the short term or at all at prices or costs that are favorable to us. In particular, while
we believe that we will be able to secure alternate sources of supply for almost all of our single sourced components on a relatively short time
frame, qualifying alternate suppliers or developing our own replacements for certain highly customized components of the Tesla Roadster, such
as the carbon fiber body panels, which are supplied to us by Sotira 35, a unit of Sora Composites Group.
In addition, Lotus is the only manufacturer for certain components, such as the chassis of our Tesla Roadster, and we refer to it as a sole
source supplier. We do not currently utilize any sole source suppliers other than Lotus. Replacing the components from Lotus that are sole
sourced may require us to reengineer our vehicles, which would be time consuming and costly.
We are currently designing and sourcing components for the Model S that will leverage world-class automotive suppliers. We plan to
leverage our relationships with Daimler and Toyota to access their supply bases and gain access to some low cost, high quality parts.
We use various raw materials in our business including aluminum, steel, carbon fiber, non-ferrous metals such as copper, as well as nickel
and cobalt. The prices for these raw materials fluctuate depending on market conditions and global demand for these materials. We believe that
we have adequate supplies or sources of availability of the raw materials necessary to meet our manufacturing and supply requirements. There
are always risks and uncertainties, however, with respect to the supply of raw materials that could impact their availability in sufficient quantities
or reasonable prices to meet our needs.
17
•
Battery Packs
. We assemble the Tesla Roadster, Daimler Smart fortwo electric drive, and Daimler A
-
Class battery packs.
•
Power Electronics
. We manufacture chargers for the Daimler Smart fortwo and the Daimler A
-
Class. The Tesla Roadster power
electronics module, or PEM, is manufactured based on our design by a contract manufacturer located in Taiwan.
•
Gearbox
. We manufacture the Tesla Roadster gearbox.