Tesla targets raised and shares upgraded, but the stock is sliding after the company's much-hyped Battery Day event
Shares of Tesla (TSLA) are under pressure on Wednesday after the company hosted is highly anticipated Battery Day. The event was "long on vision and boldness, but short on specifics and near-term deliverables," Bernstein analyst Toni Sacconaghi told investors. More bullish on the stock, Deutsche Bank analyst Emmanuel Rosner upgraded Tesla to Buy as he believes the company's Battery Day showcased an "impressive trajectory" for its technology, capacity and cost. Meanwhile, several lithium names have slipped into negative territory following Tesla's announcement of plans to vertically integrate into lithium, which Raymond James analyst Pavel Molchanov sees as unlikely to be needle-moving in the context of the global lithium market.
BATTERY DAY: During its Battery Day held on Tuesday, Tesla said it is moving toward eliminating cobalt in its batteries, announced a new Plaid powertrain for the Model S that could get to speeds of 200 mph, and a new cathode plant to streamline its battery production. Elon Musk also said Tesla will make a "compelling" $25,000 electric vehicle three years from now. The company is planning to manufacture its own tabless batteries, reducing costs and bringing the sale price of Tesla electric cars closer to gasoline-powered vehicles. Tesla currently sources its batteries from Panasonic (PCRFY) and other partners.
GROWING TECH LEAD: Following the Battery Day, Deutsche Bank analyst Emmanuel Rosner upgraded Tesla to Buy from Hold with a price target of $500, up from $400. The analyst believes the company's event showcased an "impressive trajectory" for Tesla's technology, capacity and cost, which should help accelerate the world's shift to electric vehicles and extend the company's lead "considerably." While investor expectations into the event were high, Tesla's plan to achieve 56% reduction in battery cost over the next three years came in "considerably better than anticipated, and could materially boost its volume and margin outlook," Rosner contended.
Further, the analyst also increased Tesla's earnings estimates to incorporate lower battery costs and higher volumes, and said he now sees the company delivering 2M-plus vehicles and generating $15 in earnings per share by 2025. With the stock down as traders "sell the news," longer-term investors should take advantage of weakness to buy Tesla as the best way to invest in vehicle electrification, Rosner concluded.
Following Tesla's Battery Day, Goldman Sachs analyst Mark Delaney raised the firm's price target on the stock to $400 from $295, while keeping a Neutral rating on the shares. The new target is based on potential for accelerated electric vehicle adoption as well as potential margin upside from software, Delaney told investors in a research note of his own.
Also commenting on the event, Piper Sandler analyst Alexander Potter said Tesla's Battery Day highlighted a series of technological and process-related improvements that, when combined, should deliver dramatically lower battery manufacturing costs, with the company expecting to produce $25,000 electric cars within three years. The shares are trading lower post the event likely due to the lack of flashy product unveilings, Potter contended. However, in the analyst's view, Battery Day "did a good job of summarizing the reasons why Tesla's advantage is insurmountable." Potter reiterated an Overweight rating on Tesla with a $515 price target.
While Tesla's Battery Day was "long on vision and boldness, it was short on specifics and near-term deliverables," Bernstein analyst Toni Sacconaghi argued in a research note to investors. The analyst acknowledged that Tesla stated that it planned to reduce battery cost by greater than 50% by completely vertically integrating battery manufacturing, and hoped to produce 3TW of batteries by 2030. But given the brevity of the event, the presentation at times felt more visionary than specific, with few details around production location, timing, key technical milestones achieved to date, etc, Sacconaghi contended.
BEARISH FOR LITHIUM: Commenting on Tesla's announcement regarding improvements to battery technologies at its Battery Day event, Morgan Stanley analysts said they believe the new technologies can reduce lithium usage and production costs. The auto maker also announced their own lithium mine with a new, lower-cost and more sustainable process, said the firm, which thinks lithium stocks will react negatively to the event that they view as "bearish for lithium." Morgan Stanley analyst Javier Martinez de Olcoz Cerdan has an Equal Weight rating on SQM (SQM), which he believes has "a strong competitive position," while analyst Vincent Andrews keeps an Underweight rating and $40 price target on Albemarle (ALB) shares.
Meanwhile, Raymond James analyst Pavel Molchanov said he expects shares of Livent (LTHM), Albermarle and SQM to trade lower on Wednesday following Tuesday's comments by Elon Musk at Tesla's battery-focused analyst meeting that Tesla will seek to vertically integrate into lithium. Molchanov, who made no change to his Strong Buy rating on Livent, thinks the plan is unlikely to be needle-moving in the context of the global lithium market and that it remains to be seen whether Tesla will follow through on its mining plan.
WHAT'S NOTABLE: BMO Capital analyst Joel Jackson told investors his assumption is that Tesla's acquired rights in an unnamed Nevada lithium clay project is not Lithium Americas' (LAC) Thacker Pass clay project and instead is another Nevada land package. Lithium is not currently mined from clay with several companies such as Lithium Americas investigating commercial methods, so there is technology risk, Jackson contended. However, he believes that the thought of Tesla vertically integrating into lithium production one day will "spook lithium producer share prices," even if Tesla is only being speculative. Jackson added that clay lithium mining is still hypothetical and could take several years until an actual mine is in production. On Lithium Americas, the analyst pointed out that some insiders have been selling shares over the last two months into share price strength and the company has not issued a press release.
PRICE ACTION: In morning trading, shares of Tesla have dropped over 6% to $398.30. Also trading lower, Livent has slipped over 4%, Albemarle has plunged more than 11% and SQM has dropped about 10%.