TESLA FALLS AS BATTERY DAY LETDOWN CLOUDS $320 BILLION INCREASE | AUTO INDUSTRY NEWS | AUTO REPORTER
Updated: Sep 27, 2020
Tesla Inc.'s highly awaited "Battery Day" fell little of expectations that improved fuel its $320 billion surges in market value this year, with Elon Musk planning theatrical goals that will take time to pull off.
The chief executive officer laid out a plan Tuesday to create a $25,000 car and cut battery prices in half across the next three years. Analysts said while the technology and production innovations outlined were significant, Tesla's estimate already reflected its head to disrupt, and investors may be let down by the absence of surprises at the much-hyped battery-showcase event.
This appeared to be the case on Wednesday, as the company's shares fell by 11% to $375.88, closing at $380.36 in New York. They're up about 360% for the year so far.
"With the Battery Day in the rearview, we believe there is a shortage of upcoming catalysts and are careful about demand given the recessionary environment," Robert W. Baird's Ben Kallo wrote in a Wednesday report naming Tesla a bearish "fresh pick."
That was echoed by Patrick Hummel, an analyst at UBS with a "neutral" rating on the stock, who said in a research note Tesla's leadership in battery technology and prices is fully valued into the store. "Given the high expectations into the matter, we believe the market will originally respond negatively to the relatively long timelines of the modifications and the lack of granularity," he wrote.
Musk, 49, said Tesla requires ultimately to produce 20 million cars a year. He outlined a series of innovations involving dry-electrode technology and giving the battery a structural element of the vehicle. Those incremental and longer-term accommodations repudiated expectations for a blockbuster leap ahead, which Musk himself pumped up in the weeks leading up to the event.
"The challenge with the stock is that everything they are speaking about is three years away," said Gene Munster, managing director of Loup Ventures. "I think conventional auto is in an even more cutting spot, but Tesla investors want this tomorrow."
Vertical-integration improvements -- from producing its battery cells on a pilot line at its factory in Fremont, California, to owning equities to a lithium clay deposit in Nevada -- are designed to allow Tesla to cut costs and offer an affordable car as soon as 2023.
"This has forever been our dream from the very start," Musk said at the event centered on Tesla's battery technology. "In about three years from now, we are certain we can make a compelling $25,000 electric vehicle that is also entirely autonomous."
Musk is tantalizing possibilities for a cheaper mystery model without ever becoming delivered on the $35,000 price point he had promised for the Model 3. Three years after Tesla began taking orders for the car in early 2016, the CEO declared plans to close most of Tesla's stores as a cost-saving action, enabling him to give the vehicle at that cost. He backtracked ten days later, and the cheapest Model 3 available now is $37,990.
Creating a truly mass-market electric car and boosting Tesla's contemporary annual production to 20 million vehicles will need many more batteries than currently being made from a handful of suppliers worldwide. So Musk intends to extend global capacity by manufacturing battery cells in-house to improve what it can buy.
"Today's batteries can't scale fast enough," said Musk, who is driven in part by the demand to find sustainable energy sources. "There's a definite path to success but a ton of work to do." Musk said the gasoline-powered internal-combustion engine would one day be out-of-date.
Musk described an "incredible series of variations with varying levels of difficulty," said Venkat Viswanathan, a battery expert at Carnegie Mellon University. While battery-manufacturing progress is possible and deliverable in the three-year time frame, Viswanathan believes that chemistry developments will take longer.
If the proposed innovations pay off, the vehicle range could increase by 54%. The cost could reduce by 56%, and Giga factories' investment could decline 69%, said Andrew Baglino, Tesla's senior vice president for powertrain energy engineering.
BloombergNEF expects Tesla's pack prices were $128/kWh in 2019. A 56% cost decrease would bring prices down to $56/kWh. In accession to the pilot line for battery cell making in Fremont, Musk said the company would additionally make cells at the factory under construction in Berlin.
Battery Cell 'Leap'
Most global automakers have shied off from making their battery cells, indicating the high investment costs and their absence of expertise in an industry controlled mostly by Asian electronics companies such as Panasonic Corp. and LG Chem Ltd.
In a tweet Monday, Musk said that Tesla would require to start producing its battery cells to maintain its various products, still as it ramps up purchases from external suppliers. He wrote that the company wants significant cell shortages in 2022 and beyond, except it ramps up its output.
"I'm shocked that they're using that leap themselves," said Tony Posawatz, a specialist who led the development of General Motors Co.'s plug-in hybrid Chevrolet Volt and now sits on the board of Lucid Motors Inc., a Tesla rival. "I think this is going to be a bit more difficult than what they think, and I don't think we'll see a lot of volume out of that for quite some time."
Tesla's most fundamental and long-standing partner on batteries is Osaka-based Panasonic. It also has smaller-scale contracts with Contemporary Amperex Technology Co., or CATL, in China's Fujian region and South Korea's LG Chem.
The highly professional Battery Day display involved some news overshadowed masses by the talk of cathodes and electrolytes. One example: The "Plaid" variant of the Model S sedan -- with a range of 520 miles -- is now ready to order, though the vehicle isn't expected to go on sales until late 2021.
Tuesday's three-hour experience began with the annual shareholder meeting, held external to allow for social distancing. Shareholders sat in Tesla cars in a parking lot, beeping loudly, somewhat of encouraging as Musk delivered.
Investors voted to re-elect Musk and chairman Robyn Denholm to the board. They voted against decisions that would have required more transparency about human rights in the supply chain and the use of agreement with employees. One shareholder resolution, which requires Tesla to use a simple majority vote, did pass.
Musk told stockholders he anticipates to see deliveries improve on the order of 30% to 40% this year, reaffirming Tesla's estimate when automakers are striving to recover from the coronavirus pandemic. "While the rest of the industry has gone down, Tesla has gone up," he said.
Tesla has said it expects delivering 500,000 vehicles in 2020, up about 36% from 2019. In July, the electric-car maker said accomplishing that goal would be "more difficult" due to a pandemic-related production shutdown early in the year. According to the study firm LMC Automotive, global sales are projected to decrease by about 17% this year to 75 million from 90 million last year.