Piper Sandler Reveals ‘Tesla Has a Plan’ to Reduce Battery Sourcing from China

Alexander Potter, a top analyst from Piper Sandler, revealed that Tesla (TSLA) “has a plan” to reduce its battery sourcing from China. The five-star analyst highlighted the electric vehicle (EV) maker’s unique strategy to build in-house batteries. Potter said, “Thanks to vertical integration, Tesla is the only car company that is trying to source batteries, at scale, without relying on China.”

Potter’s remarks followed a May 30 call with battery expert Jordan Giesige. After gaining insights from the discussion, Potter reiterated his “Buy” rating on Tesla stock and maintained a price target of $400, implying 16.2% upside potential from current levels. With the Trump administration’s assertive stance on reducing reliance on foreign countries and bolstering domestic manufacturing capabilities, Tesla’s early steps could prove highly beneficial in the long run.

Here’s How Tesla Is Reducing China Reliance

Potter noted that Tesla’s in-house production of ‘4680’ battery cells is “already approaching 0%” reliance on Chinese resources. Tesla’s ultimate goal is to manufacture its own cathode active materials (CAM), refine its own lithium, construct its own anodes, coat its own electrodes, assemble its own cells, and sell its vehicles independently. The analyst appreciated Tesla for these efforts, stating, “No other U.S. entity can make similar claims.”

Furthermore, Potter emphasized the importance of Tesla’s dry battery electrode (DBE) process, which he claims is 5 to 6 times faster than coating anodes or cathodes with a wet process. If this approach prospers and depending on Tesla’s ability to scale this DBE process effectively, it could lead to “material” capital and operating cost savings. Additionally, Giesige pointed out during the call that Tesla is exploring ways to produce domestic iron-based (LFP) batteries. Should Tesla succeed in establishing roughly 10GWh of domestic LFP capacity, it could supply 25% of the 40GWh required annually for Megapack (large-scale battery energy storage systems) production in the U.S., Giesige added.

Potter concluded that while Tesla’s success is not guaranteed, there is no way to completely “insulate” the U.S. supply chain from China within the next two years. Nonetheless, Tesla is taking proactive steps to gradually reduce its reliance on China, and Potter is encouraged that “at least Tesla has a plan.”

Notably, Potter ranks #421 out of the 9,596 analysts ranked on TipRanks. He has an average return per rating of 18.70% and has a success rate of 48%. To date, his best stock recommendation has been a “Buy” call on Tesla stock, between January 10, 2020 to January 10, 2021, during which he earned an impressive 800% return.

Is Tesla a Buy or Sell Today?

On TipRanks, TSLA stock has a Hold consensus rating based on 16 Buys, 10 Holds, and 11 Sell ratings. The average Tesla price target of $282.70 implies 17.9% downside potential from current levels. Year-to-date, TSLA stock has lost 14.8%.

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