Everything investors need to know about Tesla’s battery day

Tesla will reveal its highly anticipated battery technology on Tuesday.

Analysts wonder if Tesla will become a supplier to the EV industry. That’s one potential wild card. Picture; Getty Images/AFP

Tesla will reveal its highly anticipated battery technology on Tuesday. Analysts are using phrases like “long anticipated” “major milestones” and “mind blowing” to describe the event.

Tesla chief executive Elon Musk added to hype recently, tweeting “many exciting things will be unveiled”. He closed the tweet with a lightning bolt emoji.

The event is a big deal for the stock. It will shape investor opinions about the future of electric vehicles and Tesla’s technological lead. Investors can divide likely topics into a few categories: battery cost, reliability and capacity. New battery technologies should also be discussed. And investors should also be ready to hear about stationary power, which includes the Tesla Powerwall business.

Battery cost

Costs are a big deal for all EV makers, including Tesla. Historically, electric vehicles have been more expensive up front than comparable petrol-powered models. That is, essentially, because high-tech batteries cost more than a petrol tank.

Battery costs are falling. Some industry insiders says costs are down 75 per cent over the past 10 years. The cost bogey today is for battery cells to hit $US100 per kilowatt-hour.

Credit Suisse analyst Dan Levy thinks Tesla’s event will focus on cost reduction, potentially offering $US75 per kilowatt-hour. Cost reduction “can help unlock sales at lower price points and thus fuel further growth”, writes Levy in a recent research report. He rates shares the equivalent of Hold and has a $US400 price target for the stock.

Morgan Stanley analyst Adam Jonas also rates shares the equivalent of Hold. His price target is lower, however, at $US272 a share. He asks in his event preview report: “Could Tesla communicate plans ... to target $US50 per kilowatt-hour?” That’s the lowest battery cell cost target Barron’s has seen in a Wall Street research report.

Anything below $US100 per kilowatt-hour, along with a credible plan to get there, should be a win for Tesla shareholders.

Reliability

Wedbush analyst Dan Ives thinks a million-mile battery will be “front and centre” on Tuesday. That’s a battery that can last a million miles (or about 1.6 million kilo­metres) through all the charging cycles. A battery like that would last longer than the car body and open up reuse and recycling opportunities. Battery re-use is another factor in cost ­reduction.

Ives rates shares a hold and has a $US380 price target for the stock. New Street Research analyst Pierre Ferragu also rates shares a hold. His price target is $US300 a share.

Ferragu has a different opinion on the million-mile battery. He thinks it is irrelevant to the long-term success of Tesla. Other carmakers can achieve the same thing, so he believes battery reliability won’t help Tesla differentiate itself from its competition in the long run.

Capacity

Ferragu, instead, thinks Tesla’s secret project “Roadrunner” could be big. This is an internal project, apparently designed to improve all aspects of battery design and manufacturing.

“The key to success here is to evolve chemistry, the design of cells, of the entire powertrain, and of the manufacturing of all these components altogether,” writes Ferragu. “The current set up is suboptimal. Tesla co-develops chemistry and cell architecture and doesn’t manufacture. We see key benefits in bringing all under the same roof.”

Ferragu also discounts the importance of giant “tera-factories,” which are, in theory, orders of magnitude larger than Tesla’s Nevada Gigafactory. (The numerical prefix tera is a one with 12 zeros. Giga is a 1 with nine zeros after it.)

Capacity still matters. Tesla has enough battery capacity to make 600,000-700,000 vehicles a year. The company will have to ramp up capacity to meet projected growth targets.

Ferragu believes investors want to know Tesla will have enough capacity to make 2 million cars by 2025. That implies a battery capacity increase of about 3x between now and then. (Tesla has about 63 gigawatt hours of battery capacity today.) Morgan’s Jonas forecasts Tesla to be producing 439 gigawatt hours of batteries by 2030. That’s a sevenfold increase in 10 years, or about 21 per cent growth a year, on average. Any guidance from Tesla about capacity can be compared with those figures.

Technology

Start-up QuantumScape plans to bring solid-state battery technology into the EV market. Solid state batteries have more power density — more electricity can be, essentially, shoved into a smaller unit, which lowers costs.

“With solid state competitors targeting solid state power density above 400 watt-hours per kilogram, we’d expect Tesla to give its anticipated time for reaching such levels,” wrote Oppenheimer analyst Colin Rusch in a report previewing battery day. Today’s batteries have about 260 watt-hour per kilogram capacities.

Musk tweeted about higher energy density batteries recently, saying they were probably three to four years away.

Rusch qualifies as a Tesla bull. He rates Tesla stock a buy and has a $US451 target for shares.

Stationary power

Investors shouldn’t forget about stationary power. “Stationary storage growth, while solid, has been far off Tesla’s prior stated goals,” writes Levy. “In 2014 Tesla cited a goal of reaching 15 gigawatt hours of Tesla Energy volume by 2020 ... that year they had only 1.7 gigawatt hours.”

One problem is battery cell capacity has been constrained. Tesla has been busier building cars. The storage market, according to Levy, is “nascent” but represents upside as costs come down and capacity ramps up.

Wild cards

Analysts wonder if Tesla will become a supplier to the EV industry. That’s one potential wild card.

Barron’s