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Tesla to End Supply for Toyota's RAV4

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Tesla Motors, Inc. (TSLA) plans to stop supply of battery packs and motors to its partner Toyota Motor Corp. (TM) this year, according to sources. Toyota uses this battery pack and motor in its electric vehicle RAV4.

Toyota owns a 2.4% stake in electric vehicle producer, Tesla. Toyota was supposed to buy Tesla’s components for 2,600 electric RAV4 vehicles over a three-year period. However, Toyota is expected to end the current RAV4 electric vehicle model this year. As a result, Tesla plans to end production activity under this program. Supply to Toyota generated $15.1 million in revenues for Tesla.

Tesla is now focused on its global sales expansion of Model S sedans and launch of the electric Model X crossover in 2015. It is also planning to launch a lower-priced rechargeable sedan in the coming 2–3 years. The company is also increasing its supply of components for Daimler AG’s (DDAIF) electric Mercedes B-Class.

In order to deal with the shortage of lithium-ion batteries, Tesla is building a Gigafactory to produce the batteries in collaboration with various partners. The construction work will commence this year and is predicted to complete by 2017. By 2020, Tesla expects the annual lithium-ion battery production of the Gigafactory to exceed global production in 2013.

The factory will produce enough battery packs to allow Tesla to build around 500,000 electric cars by 2020. It will also reduce the ‘per kWh’ cost of production of battery packs by over 30%. The automaker expects the factory to provide economies of scale and reduce production costs based on innovative manufacturing techniques, reduced logistic wastes, optimization of processes and lower overhead costs.

Tesla currently carries a Zacks Rank #5 (Strong Sell). Volkswagen AG (VLKAY), a Zacks Rank #1 (Strong Buy) stock, is currently performing well in the automobile industry.

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