: Tesla price increases caused by major issues sourcing critical parts, Elon Musk says

United States

Major issues sourcing key parts for the production of Tesla’s automobiles are behind recent increases to the cost of the electric vehicles, Chief Executive Elon Musk said on Twitter on Monday.

Responding to a tweet about features in the new Tesla TSLA, +0.18% Model Y and rumors of price increases, Musk said that prices were increasing “due to major supply-chain price pressure industrywide.”

In late May, Electrek reported that Tesla’s Model 3—its cheapest vehicle—and Model Y both rose in price by $ 500, representing the fifth incremental increase in cost in just a few months.

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

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

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

Auto giants including Volkswagen VOW, +2.54%   0P6N, +0.88% and Ford F, +0.86%  have warned of a looming production crisis in recent quarterly earnings, with Ford projecting a $ 2.5 billion hit to profits this year from the chip shortage. On Tuesday, Chinese EV group NIO NIO, +8.00%  said that car deliveries in May were adversely affected for several days due to the volatility of chip supply and certain logistical complications.

Tesla is set to take the rare step of paying in advance for its semiconductors as one way to secure supply amid the global shortage, and is even exploring buying a chip plant, the Financial Times reported last week.

More broadly, electric-vehicle batteries are reliant on rare metals such as lithium, nickel, and cobalt. It is expected that there will be new pressures on the supply chains for rare metals and that battery factory capacity will become stretched as electric vehicles become more popular.

In a report published in March, analysts at Swiss bank UBS UBS, +0.95%  predicted that the required battery-cell supply to meet the increased demand will result in “regional tightness this year and global shortages by 2025.”

In order for electric-vehicle market penetration to reach 20% in 2025 and 50% in 2030, as projected, battery-cell supplies need to increase 70% more than previously forecast over the next decade, according to UBS. A supply shortage is imminent, the analysts said.