Arie Goren

About the Author Arie Goren

Arie Goren is a senior global analyst at Sigma Wealth Management/ ANDBANK GROUP. He has 37 years of experience in the world financial markets specialized mostly in the American stock markets and commodities. Arie Goren has been writing many investment articles in important financial websites and financial newspapers like Seeking Alpha, Amigobulls, TalkMarkets, Born2Invest, Bizportal, Themarker, Calcalist, Globes and others. He has also developed very successful strategies for creating winning portfolios according to specific formulas. In January 2015, he was ranked among the world’s top 10 financial bloggers according to TipRanks, which holds financial experts accountable for their recommendations by disclosing their stock ratings since 2009.

Is Tesla Inc’s (TSLA) Advantage at Risk Amid New Germany Battery Gigafactory?

Tesla Inc (NASDAQ:TSLA) has presented a loss in six of its last seven quarters. Nevertheless, its shares price is up 40.5% in the last year. The reason for this is the bright prospects for electric cars and the general assumption that Tesla has an advantage over the other major car manufacturers which are also having electric vehicles projects. One of the main advantages Tesla has is its Gigafactory for lithium-ion batteries. Despite the significant decline in electric cars batteries cost from about $1,000 per kilowatt-hour (KWh) in 2010 to about $200 per kWh now, their cost is still representing the single most costly part of electric vehicles. Since Tesla will offer its Model 3 with a 60 kWh battery, its battery cost is expected to be about $12,000.

As such, to reduce the spending of the expensive lithium-ion batteries and get enough supply for its projected production of 500,000 cars by 2018, Tesla built its battery Gigafactory. Tesla’s Gigafactory near Reno, Nevada started mass production of lithium-ion battery cells on January 3. According to the company, the lithium-ion cells will be used in its Model 3 all-electric sedan which Tesla plans to start delivering in the second half of year, and in its energy-storage products. Tesla’s Gigafactory project is quite admirable, and according to the company, it will produce 35 gigawatt-hour (GWh) of lithium-ion battery cells annually, compared to103 gigawatt-hour which is the present global combined battery production. This Gigafactory project should give Tesla an advantage over other electric vehicles manufacturers having a lower cost of its batteries and guaranteeing the supply of batteries which is already limited.

However, on May 22, Angela Merkel, Germany Chancellor attended the inauguration of a mega plant to assemble lithium-ion energy storage units for Daimler AG the producer of Mercedes-Benz luxury cars. Although the German 500 million-euro project is not as big as the Tesla’s $5 billion Gigafactory venture with Panasonic, it could decrease the advantage Tesla would have over its competitors. Large-scale battery plants are also projected in Sweden, Hungary, and Poland. These new factories as well as Daimler’s battery assembly plant, are expected to supply the demand from automakers such as Renault SA and Volkswagen AG. According to researcher estimates, these new factories could cut the cost of lithium-ion batteries by more than 40%, hence making electric cars more affordable and more attractive.

In this case, would Tesla maintain its advantage over the other major electric vehicles producers? As I see it, Tesla still has the privilege of being the only major carmaker dedicating to just electric vehicles enabling it to gain much experience in this kind of production. In my view, it will be difficult to other major automakers to be able to produce such successful electric cars in competitive cost as Tesla. Is this fact justify the premium of the current Tesla’s shares price? I must admit that I agree with the average opinion of top analysts, according to TipRanks, who are giving TSLA’s stock a target price of $289.78 representing a downside of 6% to its price on May 24.

In the long run, I believe that Tesla is well positioned for continuous growth. However, I would wait to see if the company could fulfill its plan to deliver 5,000 Model 3 sedans per week by the end of the year and 10,000 cars per week in 2018 before opening a long term long position on the stock.

 

  • rick

    Tesla has such an ambitious, by the time it is clear they have the 10,000 car per week capacity, they will be of to double that.. Invest during the next stock market crash..

  • skeeteril

    One cannot lump all batteries together. It would be like saying Energizer, Rayovac, and Durocell are all the same, except for the price.