Tesla shares didn’t respond well to what the market heard at the long-awaited Battery Day earlier this week, with the stock falling by around 10 per cent, compounded by reported issues with the Tesla network that apparently went down the following day.
Despite the fall in the share price to just above $US380 a share, down from a high of $US450 earlier in the week, Tesla remains by far the most valuable car company in the world (and one of the most valuable tech companies too ), with a near $US400 billion market capitalisation putting its value at more than the next five biggest car makers combined.
Analysts say the stock price fall was due to the fact that many of Tesla’s promised battery day innovations – including a big fall in production and storage costs, and a significant increase in range – would not be delivered for another three years.
“I think it’s fair to say that the timelines announced on Battery Day were disappointing,” said Electrek, one of the most popular website writing about Tesla.
Another leading analyst, Dan Ives from Wedbush, was quoted as saying that the event lacked any news of the million-mile battery which had been “widely expected” by Wall Street and Tesla shareholders.
But other analysts were impressed. One, Adam Jonas from Morgan Stanley, believes that Tesla largely delivered on the hype, and if the long term plans are also delivered, then the stock might be worth three times more than it is now.
“Tesla’s Battery Day largely lived up to the hype, but didn’t clearly exceed it,” Jonas and his team wrote in a research note.
They noted that the cost reductions – a 56 per cent fall in the cost of cells, and a 69 per cent cut in the cost of investment in battery storage capacity are substantial for the industry.
“Remember, Moore’s Law does not apply to physics and battery chemistry,” it said, in reference to the law that declares that the cost of microchips will halve for every doubling in capacity. It’s a rule that also applies to the solar industry.
Morgan Stanley says the speed of the innovations announced by Tesla – delivering them in three years time, more than three times faster than the industry trend.
“Based on our discussions, investors had largely expected a 50% reduction in cost, terawatt-scale capacity growth, vertical integration, improvements in range/energy density, etc. These were broadly delivered.”
They saw Elon Musk’s presentation as a “call to arms” for governments, suppliers, investors and engineering talent to ‘take it up a notch’ and significantly accelerate policies and investment.
Tesla will need to spend $US50 billion alone to ramp up its battery storage capacity to 3 terrawatt hours by 2030, and the world as a whole will need to invest $US300 billion to take total capacity to 20TWh.
Musk also suggested that Tesla plans to make 20 million electric vehicles by 2030. Morgan Stanley reckons that accounts for all of its previous forecasts for global EV uptake by the end of the decade.
At a value of around $50 a share for each additional unit (EV) above its forecasts, that equates to a potential doubling or a tripling of the share price, the analysts said. All else equal, 20 million units by 2030 could (on paper, at least) justify a doubling or a tripling of the share price.