Tesla Between the Fronts: CATL and the Geopolitical Challenge

The inclusion of the Chinese battery manufacturer CATL in a list of companies allegedly connected to the Chinese military by the USA could put Elon Musk in a difficult position. CATL, as the world's largest battery producer, supplies Tesla's Shanghai factory with lithium iron phosphate batteries that are exported to markets like Europe and Canada. Concerns about security have been raised by US lawmakers, who view some of CATL's battery storage projects in the United States as potential threats. In 2023, according to estimates by Citi, the USA accounted for 4% of CATL's electric vehicle and 35% of its energy storage batteries. The US Department of Defense has classified CATL and other Chinese companies, including Tencent Holdings, as connected to the Chinese military. While this designation does not directly constrain CATL's business activities, it carries the risk of reputational damage and could pressure the US Treasury to impose sanctions. Nonetheless, Tesla and CATL are planning a licensing agreement for battery manufacturing in Nevada, set to start in 2025. Despite geopolitical frictions, the collaboration between Tesla and CATL remains central to their strategic orientation, particularly regarding the growing demand for energy storage solutions like the Megapack. Analysts do not foresee immediate impacts for Tesla, but potential military exclusions could prompt investors to reconsider CATL partnerships. The importance of Tesla's relationships with the Chinese government continues to play a significant role, and the existing partnerships are expected to continue despite political tensions.