Much ink has been spilled in recent weeks regarding Tesla Motor’s announced plans to build a $5 Billion battery factory somewhere in the American Southwest. ((Jaclyn Trop and Diane Cardwell, Tesla Plans $5 Billion Battery Factory for Mass-Market Electric Car (Feb. 26, 2014), http://www.nytimes.com/2014/02/27/automobiles/tesla-plans-5-billion-battery-factory-for-mass-market-electric-car.html.)) Tesla has announced that the projected cost of the factory is $5 Billion, with roughly $3 Billion of that money coming from “partners”. ((Id.)) The projected production numbers behind the plans to build this massive factory are situated around a target of 500,000 cars annually by 2020, as opposed to the 21,500 vehicles sold in 2013. ((Id.; Hannah Elliott, Tesla Revenue up 9% As Productions Constraints Hinder Growth (Nov. 5, 2014), http://www.forbes.com/sites/hannahelliott/2013/11/05/tesla-up-9-as-production-hinders-growth/.)) While the potential location of the plant has garnered much attention, there has been little focus on the implications this move will have on Tesla’s component manufacturers.
A quick glance at Tesla’s existing partnerships and recent business news reveals a quick revelation. Tesla’s component manufacturers are buying into Tesla’s plan to exponentially increase their total vehicle production figures over the next six years.
One particular supplier to Tesla, Amtek Engineering Ltd (Amtek), has recently announced plans to begin acquiring manufacturing companies with an eye towards increasing their component manufacturing capabilities and doubling their sales to $2 Billion in a five to seven year window. ((Jasmine Ng, Tesla Supplier Amtek to Spur Sales with More Takeovers (Mar. 10, 2014), http://www.bloomberg.com/news/2014-03-09/tesla-supplier-amtek-to-spur-sales-with-more-takeovers.html.)) The first acquisition in Amtek’s planned buying spree was Interplex Industries Inc., a U.S. precision-tool maker. ((Id.)) Amtek has announced that they expect that automotive companies will contribute 40 percent of their revenue in the next two to three years, which is more than double the 18 percent of Amtek revenue contributed by the auto industry as of this month. ((Id.)) The implications of Tesla’s planned expansion on Amtek’s projected revenue increase, in light of the preexisting supplier relationship between Tesla and Amtek, borders on obvious.
Amtek India, a subsidiary of Amtek Engineering, has also been active in the automotive acquisition sector in the past few months, acquiring German based Kuepper Group, which is engaged in manufacture and casting of iron and aluminum automotive components for steering, transmission and suspension systems. ((Tilak Devadiga, Amtek India Acquires Germany’s Kuepper Group (Jan. 3, 2014), http://www.dealcurry.com/2014013-Amtek-India-Acquires-Germany-s-Kuepper-Group.htm.)) In addition to the Kuepper Group acquisition, Amtek India has also recently acquired the Neumayer Tekfor Group and JMT Auto Ltd., both of which are automotive component manufacturers.
So, where is the private equity angle here? Well, private equity group Standard Chartered Private Equity Limited is the largest shareholder of Amtek Engineering, holding 30.05% of the company. ((Amtek Engineering 2013 Amtek Report, available at http://www.amtek.com.sg/ir_annualreport.html.)) As such, Amtek’s recent acquisitions have ostensibly been driven substantially by Standard Chartered’s assessment of their position in the automobile component manufacturing industry. The conclusion that these acquisitions have been tailored specifically to the proposed construction of this massive Tesla battery plant is probably hasty and not entirely well founded. Yet, it seems reasonable to suggest that, through their holdings in Amtek Engineering, private equity player Standard Chartered is aware of the potential exponential increases in Tesla production and therefore has contemplated the corresponding spike in component demand.
Just like U.S. States have been jockeying for position in their courtship of Tesla to provide the site for the new factory, if construction of the facility does indeed get underway, and plans to exponentially increase the production of Tesla vehicles are in fact realized, we may well see other private equity funds pursuing acquisitions in the automotive components manufacturing industry. While it is too early to tell for sure, it is distinctly possible that Standard Chartered is exercising superb vision in positioning themselves for Tesla’s future success.
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