Tesla Motors (TSLA) Will Build Model 3 Using Cheaper South Korean Parts

Tesla Motors Inc (NASDAQ:TSLA) Model 3

Tesla Motors Inc is turning to Asia in order to gather parts for its upcoming Model 3. In particular, the electric car giant has its sights set on South Korea. The East Asian country is said to be a key player in the arrival of Tesla’s first mass-market EV. Industry sources say multiple companies in South Korea will contribute to the Model 3 supply chain.

“Tesla is turning to South Korean parts makers, which are more cost-competitive than Japanese rivals, as the electric car startup plans to drastically cut costs for the cheaper Model 3.” — Eim Eun-Young, Samsung Securities.

Tesla Motors Inc (TSLA)
The upcoming Model 3 concept from Tesla Motors

It’s all uphill for Tesla

Tesla is plagued by a number of issues and most them are interrelated. The company sprung to life in 2003 and went public just seven years later. The EV firm is only thirteen years old but already rates as the U.S.’s best selling luxury car maker. Yes, in America the sales of its flagship Model S sedan outdo those of any BMW, Mercedes-Benz or Porsche. Further, the gap between Tesla and its rivals in the high-end car market is only widening.

However, Tesla is clearly rising very fast through the auto industry. Some might say a bit too fast, in fact. Elon Musk and co. are neither going about their business quietly nor as efficiently as they could. Tesla is definitely disrupting the auto scene across numerous states in the U.S. and scoring points with consumers in the process. The company’s pockets can’t keep up with its rapid growth, though. And while demand for its elegant EVs soars, Tesla just can’t seem to deliver them a rate that can pull in a profit.

Turning admirers into buyers

Tesla Motors Inc  has no shortage of fans across the world. You need only look at the near 400,000 paid pre-orders from consumers just itching to get their hands on the Model 3. But the company has always had one particular barrier. It could never turn all of its fans into customers. The thing is that Teslas go for a pretty hefty price. The average buyer pays near $100,000 for their Model S. The truth is that the Model S sedan and higher-end Model X SUV are just unobtainable for many people.

But that’s where the Model 3 comes in. Going for a mere $35,000 at standard, the car promises to shatter the cash barrier that once made these luxury EVs so unobtainable for many. Although, industry experts aren’t fooled. Bearing the Model 3’s specs, the upcoming car will probably cost a lot more that its going price. If you thought the Model X was a hassle, this next electric car could be the EV maker’s biggest challenge yet.

Elon Musk has to make a lot of cars

Four hundred thousand (400,000) is the number that is being thrown around in relation to the Model 3 lately. This pre-order rate accumulated in under three months of the vehicle’s unveiling. That number makes Tesla Motors very nervous. It had only anticipated around half of those reservations. There’s little doubt by the time the Model 3 goes into production next year, pre-orders will be a bit over half a million.

Half a million is also a very significant number for the EV producer. It is the same figure Tesla assigned to the number of cars it wants to produce in 2018. That goal requires it to expand its production ten times over within the next 2 years and was even brought forward to meet rising demand. If you know anything about Tesla and still think that this is possible, you’re more optimistic than most. Regardless, Tesla understands that it just needs to sell enough cars for profits to be in the clear. That is a lot easier said than done, of course.

The company’s cash reserves are beneath its aspirations. Although Tesla has always been ambitious, it is yet to roll out a car without any sort of delays or minor faults. Looking at its $1.7 billion stock sale last month and the $106 million tax break it asked for a few days ago, it is clear that Tesla will need all the financial slack it can get in order to make its next EV a success. And just about every industry giant would agree: If you want to go cheap, go to Asia.

Asia can ease money concerns for Tesla

The name of Tesla Motors’ latest partner in South Korea is Mando Corporation. The company has in fact been supplying the car maker for some time now. It specializes in brake, steering and suspension parts. Mando currently supplies Tesla Motors with the Model S’s steering racks too.

In regards to which Model 3 parts Mando Corporation will be supplying, that has not been disclosed. However, Tesla was quick to shut down the idea that the company would supply Autopilot hardware. Among Tesla’s other South Korean partners are Hankook Tires and LG Display.

Tesla Motor Inc  turned to Asia a while back when it decided to make its Gigafactory. This venture is being pursued together with Japan’s Panasonic. Situated in Nevada, the Gigafactory will be vital in keeping the Model 3 aligned with the automaker’s pockets. While the likes of Mando produce low-cost braking components and steering racks, the Gigafactory will assist in drastically reducing the cost of Tesla battery packs.

Lowered costs is the name of the game for Tesla right now. The firm needs every aspect of its EVs to be cheaper. Bearing this, it really shouldn’t surprise most to learn that a lot of its car parts will be made by Asian partners.

According to Automotive News, Mando Corp has two factories in the U.S. It supplies components for GM, Hyundai as well as Fiat Chrysler.

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