Tesla (NASDAQ:TSLA) is known primarily as an electric vehicle manufacturer, but part of its modus operandi involves producing battery cells too.
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Recently, the company announced $3.6 billion of additional investments for the ongoing expansion of its Gigafactory Nevada. This will be the first high-volume Semi facility but also an incremental 100 GWh 4680 cell factory (with the ability to manufacture enough batteries needed for 1.5 million light duty vehicles per year).
Morgan Stanley analyst Adam Jonas reckons that at $30 mm/GWh, Tesla’s battery capex is 60-70% below that of its Chinese and Korean counterparts, meaning Tesla “may be about to set a new and far lower industry price for battery costs.”
Furthermore, the company stands to also benefit from government subsidies. Specifically, at the Gigafactory Nevada, to the tune of $35/KWh as laid out in the IRA (inflation reduction act). And that’s only for the battery cell and does not factor in potentially an extra $10/KWh for the battery pack. “That’s a $3.5bn tax credit from the US government, every year,” Jonas notes.
So, what is Jonas really getting at here? Well, similar to what happened in the solar and LED industries, which experienced “commoditization and material price deflation,” Jonas thinks history could potentially repeat itself, and that will be good news for the segment leader. “In our view,” the analyst explained, “Tesla stands to benefit from riding the cost curve down. Lessons from the past teach us that once a technology is industrialized, and heavily subsidized, it tends to destroy returns.”
But what about other players, legacy OEMs like Ford and GM, or even EV startups such as Rivian, Fisker and Lucid? If we’re to look at previous tech breakthroughs and the ensuing industrialization, companies that can manage costs in the most effective way tend to come out on top. “Tesla is already there,” says Jonas, “and the gap to the competition is widening.”
With an outlook like that, it should be no surprise that Jonas sides with the bulls on Tesla stock. His comments come with an Overweight (i.e. Buy) rating, and a $220 price target that suggests one-year share appreciation of ~13%. (To watch Jonas’ track record, click here)
Elsewhere on Wall Street, Tesla garners an additional 20 Buys, 7 Holds and 3 Sells, all coalescing to a Moderate Buy consensus rating. The average target currently stands at $194.79, implying the shares will stay rangebound for the foreseeable future. (See Tesla stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
