Goldman Sachs sees big things coming at Tesla’s battery technology day slated for September 22. Still, it isn’t enough for analyst Mark Delaney to call shares a Buy. Nor is battery day potential enough for
investors Friday. They are selling the stock again.
Delaney rates shares the equivalent of Hold and has a $295 price target on the stock. The stock is still well above that level, however, Tesla (ticker: TSLA) shares are down another 5% in premarket trading to roughly $385. Over the past four days, including Friday’s premarket level, the stock is down a whopping 23%.
The drop doesn’t appear linked to battery day nervousness, based on what Delaney sees coming. “Tesla’s battery cost structure to be a focus of the event, and we believe that reducing pack cost to less than $100 per [kilowatt-hour, or kWh] is a key metric for investors,” writes the analyst. “We believe that Tesla’s cell cost is already sub $100 per kWh.”
That would be a pleasant surprise for investors. Delaney says battery costs have been falling at a 23% average annual rate for the past few years.
A $100 per kWh an 85 kWh battery pack that gets drivers, say, 250 to 350 miles per charge costs $8,500. That cost, along with an electric motor and power electronics, can be compared with a gasoline engine, power transmission, and gas tank. The battery is typically the most expensive part of an electric vehicle powertrain and as battery costs come down the upfront cost of an EV looks more competitive compared with traditional gasoline-powered vehicles.
A battery pack is made up, roughly speaking, of battery cells—like AAA batteries consumers buy—and battery modules.
Delaney also thinks Tesla will talk about battery manufacturing capacity and battery reliability. “Tesla’s 2019 impact report showed that Model S/X battery degradation is about 10% to 15% between [150,000 and 200,000] miles,” adds Delaney. “Tesla’s current warranty covers battery capacity at 70% for up to 8 years or [100,000 to 150,000] miles.”
Better battery life—the number of times the batteries can be recharged—can help keep Tesla vehicle residual values high. High used car prices are a competitive advantage for auto makers. They allow them to price new vehicles higher and offer better lease rates.
It’s a fairly bullish report. But other things are on investors’ minds at the moment. Shares have been hit this week by two things: a $5 billion stock sale announced Tuesday and news that long time holder Baillie Gifford sold some its Tesla holdings.
Gifford, however, said it sold stock to manage position size. Tesla shares have done so well it became too big a portion of Gifford’s overall portfolio. It might seem like an odd reason to sell, but too much exposure to any one issue eliminates the diversification benefits of holding a portfolio of stocks.
Shares are down more than 20% from their highs, but don’t call it a Tesla bear market though. Bear markets—typically defined as a drop of 20% from highs—don’t apply to single stocks. And Tesla shares are still up 430% year to date, as of Thursday’s closing price, crushing comparable returns of the
Dow Jones Industrial Average.
Write to Al Root at [email protected]