Elon Musk blames Tesla’s price hikes for a critical parts shortage. Will his fix work?

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Tesla’s Elon Musk tweeted on Monday that pressure from the supply chain was driving the price increases.

Odd Anderson / AFP via Getty Images

Main supply issues for key parts for the production of

by Tesla

automobiles are behind recent increases in the cost of electric vehicles, chief executive Elon Musk said on Twitter on Monday.

Responding to a tweet about the features of the new Tesla Model Y and rumors of price increases, Musk said prices were rising “due to major supply chain pricing pressure across the industry. “.

At the end of May, Electrek reported that Tesla’s cheapest vehicle, Model 3, and Model Y both increased by $ 500, the fifth incremental cost increase in just a few months.

“Raw materials in particular,” was the main contributor to supply chain pressure, Musk added in his tweet.

During Tesla’s first quarter earnings call in April, Musk acknowledged “insane difficulties with the supply chain,” according to a transcript of the call on FactSet, noting that, among other issues, the shortage of chips was “a huge problem”.

Over the past year, a global semiconductor shortage has affected industries from personal electronics to automobiles, where computer chips are widely used in critical applications, from power steering to parking sensors.

Automotive giants including

Volkswagen

and

Ford

warned of an impending production crisis in recent quarterly results, with

Ford

projecting a $ 2.5 billion profit impact this year due to the chip shortage. Tuesday, the Chinese EV group

NIO

says that car deliveries in May were penalized for several days due to the volatility of chip supply and some logistical complications.

Also:Preparing for Race Against Tesla, Volkswagen Targets Battery Costs, Plans Giga-factories on First Annual ‘Electricity Day’

Tesla is poised to take the rare step of prepaying its semiconductors as a way to secure supply amid the global shortage, and is even considering buying a chip factory, the Financial Times reported Last week.

More generally, electric vehicle batteries depend on rare metals such as lithium, nickel and cobalt. It is expected that there will be new pressures on supply chains for rare metals and that the capacity of battery factories will become stretched as electric vehicles become more popular.

In a report published in March, analysts at the Swiss bank

UBS

predicted that the supply of battery cells required to meet increased demand would lead to “regional stress this year and global shortages by 2025”.

For electric vehicle market penetration to reach 20% in 2025 and 50% in 2030, as expected, battery cell supplies must increase 70% more than expected over the next decade, according to UBS. A supply shortage is imminent, analysts say.

More:Nissan to invest $ 1.8 billion in battery factories with Chinese partner, report says

Look forward. A steady rise in the cost of Teslas, more than likely due to the chip shortage, is not good for the company. In addition to offering shoppers flashy, high-tech driving, a major draw for the electric vehicle brand is its competitive pricing. On Tesla’s “Battery Day” in September 2020, Musk focused on how advances in battery technology would drive down the prices of more affordable vehicles and electric vehicles. The rise in prices is a blow to this mission.

But there may be a solution. Last week’s FT report said Tesla was taking extreme measures to resolve its supply chain issues because, make no mistake, buying a factory to build what you lack is an extreme measure.

Perhaps this is the bold move the company needs, reducing car costs in the short to medium term, depending on how long the chip shortage lasts. But it could also be an expensive distraction. Semiconductor factories are some of the most high-tech manufacturing facilities in the world, and adding one to the company’s list could lead to more complications than it’s worth.

There are many ways for investors to participate in the electric vehicle revolution. Here’s what you need to know.

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