Tesla Inc. (TSLA) is said to have been given the green light by the Chinese government to build model 3 vehicles in the country equipped with lithium iron phosphate (LFP) batteries.
The name of the battery maker wasn’t disclosed, Reuters reported citing a document on the country’s Ministry of Industry and Information Technology website.
Tesla is reportedly in advanced talks to use LFP batteries from CATL that contain no cobalt – one of the most expensive metals in electric vehicle (EV) batteries – in cars made at its China plant.
Model 3 vehicles are being built at the U.S. car maker’s Shanghai factory. On May 8 Tesla revealed that it secured a 4 billion yuan lending line for continued expansion of production at the Gigafactory Shanghai.
The electric vehicle maker uses EV batteries from Panasonic Corp and LG Chem. CATL has said it would start supplying Tesla from July.
The approval comes as figures this week showed that Tesla sold 11,095 Model 3s out of its Shanghai Giga 3 factory in May, after selling less than 4000 vehicles in April.
Shares in Tesla surged 9% to $1,025.05 on Wednesday taking its weekly gain so far to 15%. The stock has now more than doubled on a year-to-date basis.
Wedbush analyst Daniel Ives believes that “with demand for Model 3’s ramping stronger than expectations in China heading into summer timeframe, the lockdown easing in the US/Europe, and some potentially game changing battery developments on the horizon that Tesla’s stock likely has room to run further”.
Earlier this week, he raised the price target on the stock to $1,000 from $800 with a revised bull case at $1,500 (prior $1,350), while maintaining a Hold rating due to valuation.
Battery enhancements in China will work to reduce production costs and would give Tesla much more “financial flexibility around pricing on current and future EV models with price parity,” according to Ives.
The analyst views the sales boom as “a very strong indicator that demand in this key region is starting to ramp after an unprecedented soft macro backdrop and pandemic over the past few months”. In addition, he expects further demand to be triggered by “some price cuts both in the US and China”.
Indeed, having exceeded the 10,160 Model 3s sold in March, Tesla’s first year of production at its Giga 3 factory appears to be “on a run rate to hit 100,000 unit deliveries,” and back on track to achieve its yearly targets.
TipRanks data shows that other Wall Street analysts also remain sidelined on the stock. The Hold analyst consensus is based on 10 Sells and 9 Holds versus 8 Buys. Following the stock’s recent rally, the Street’s $633.95 average price target implies 38% downside potential in the shares over the coming year. (See Tesla’s stock analysis on TipRanks).