Tesla has acquired Maxwell for $218 million

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Tesla announced earlier this week that it agreed to acquire Maxwell Technologies, an electric vehicle (EV) battery manufacturer, for $218 million, according to TechCrunch. James Glover / Reuters The EV battery firm told investors last month that its specialized dry electrode tech boosts the performance of batteries — allowing EVs to drive longer on a single charge — while also being more cost-effective than the more prevalent wet electrode technology. Maxwell and Tesla said the deal will close sometime in Q2 2019.

For Tesla, the acquisition is a deviation from its longtime approach of building EV batteries in-house — perhaps a necessary strategic pivot as EV competition toughens.

Since its early years, Tesla has developed batteries almost entirely on its own. And its proprietary battery tech was what set it apart from others trying to break into the space. That worked for some time, as Tesla was an early entrant and, for a while, the only fully electric car on the market. But that’s changed — competing automakers are pressuring Tesla from both the high and low ends of the market: Luxury: Porsche, for example, has seen many former Tesla customers place orders for its new Taycan luxury EV, which costs $90,000 and competes directly with Tesla’s Model S. Mercedes-Benz will start shipping an electric luxury crossover by the end of the year. And Audi plans to introduce its E-Tron in the coming months.

Economy: Nissan and GM have already introduced cars that are priced below Tesla’s $35,000 Model 3 — the Leaf and Chevrolet Volt, which start at about $29,000 and $33,000, respectively. VW , meanwhile, reportedly plans to price a forthcoming EV around $23,000, though it’s unknown when the car will go on sale.

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With competitors hot on its trail, Tesla may have decided it simply didn’t have the time to crack the EV battery code on its own. Newer entrants possess their own advantages over Tesla — brand loyalty, cheaper price points, and even just the novelty of being a new entrant in the space.

Tesla likely recognized its need to keep its battery-based competitive edge sharp, and also sought to avoid getting bogged down in R&D. Tesla’s acquisition of Maxwell was likely among its best options to achieve that goal.

Beyond just improving its cars, the acquisition also enables Tesla to diversify its revenue sources and achieve sustainable profitability. Maxwell has longstanding relationships with General Motors (GM), Lamborghini, and Geely, a Chinese automaker that’s majority owned by Volkswagen (VW).

Keeping these relationships intact would give the firm a significant new revenue stream: The global market for EV batteries will grow at a seven-year compound annual growth rate of 17.2% to be worth $84 billion in 2025, per Allied Market Research.

Diversifying revenue is likely top of mind for the company, as it looks to build on its first-ever back-to-back profitable quarters. Such an approach would be in line with Tesla’s recent moves to diversify its revenue streams, which range from selling its battery packs to charger network Electrify America to opening its own branded Amazon store. Subscribe to an All-Access pass to Business Insider Intelligence and gain immediate access to:

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