One thing missing in the presentation by Tesla (TSLA) Chief Executive Elon Musk on “Battery Day” held Tuesday is there was no battery to show off. That might explain the fall in Tesla stock Wednesday.
The event itself might have worked well as a college science class on Zoom. It was Musk on an outdoor stage with Drew Baglino, senior vice president of engineering and powertrain, detailing how they plan to both increase the range and reduce the cost of a new generation of batteries.
In presentations prior to the pandemic, Tesla drew large crowds of people pressed against each other to get a closer look at their rock star CEO on stage. Instead, Musk and Baglino faced an audience of Tesla owners in their vehicles lined up like a drive-in movie theater.
Rather than applause, they honked horns to show their appreciation. The event was toned down to avoid spreading Covid-19, and took place at the company’s manufacturing plant in Fremont, Calif.
There was no mention of a million-mile battery that many Wall Street analysts had anticipated. However, Tesla said the improvements in battery technology will enable it to launch a low-cost Tesla down the road.
“About 3 years from now, we’re confident we can make a very compelling $25,000 electric vehicle that’s also fully autonomous,” said Musk.
Lofty Goals Fail To Boost Tesla Stock
Wall Street analysts wrote about the event with differing views. But one thing seemed clear: Tesla did not exceed expectations. Tesla stock plunged 10.3%, closing at 380.36 on the stock market today.
“Like other Tesla investor days, Battery Day was not without its share of lofty goals and grandiose projections, although these were of a decidedly longer-dated nature than at past events,” JPMorgan analyst Ryan Brinkman wrote in a note to clients.
As for the battery improvement claims, Tesla is promising a 54% gain in driving range. In addition, it also targets a 56% reduction in cost per kilowatt-hour.
“While we applaud the company’s ambitious plans, we believe it is an inherently risky move with steep execution and operational challenges,” Needham analyst Rajvindra Gill wrote in his report to clients.
Tesla is currently ramping production of these new battery cells at its factory in Fremont.
Tesla Disappoints Elevated Expectations
“Overall, we believe Tesla’s long-awaited battery day disappointed elevated expectations, as it highlighted some near-term stagnation in the price reduction of current lithium ion batteries,” RBC Capital Markets analyst Joseph Spak wrote in his note. “While next-gen battery/manufacturing technologies and products are ambitious, some are not unique and others could be further out than hoped.”
Spak has an underperform rating on Tesla stock and price target of 290.
During the presentation, Musk reiterated that Tesla plans to see vehicle delivery growth of 30% to 40% in 2020. That means about 500,000 vehicles, in line with expectations.
“This was a massively hyped event for Musk and Tesla and the battery production cost targets were staggering,” Wedbush analyst Daniel Ives wrote. But if achieved, it would be a potential game changer for the company’s cost structure and price points going forward, Ives wrote.
“Tesla stock is down on knee-jerk reaction as the biggest disappointment of the event from the Street’s perspective was around no million-mile battery announcement, as was widely expected to be unveiled,” he said.
Considerable Execution Risk Ahead
Canaccord Genuity analyst Jed Dorsheimer lowered his price target on Tesla stock to 377, from 442. Tesla is moving in the right direction, he wrote.
“But there remains considerable execution risk in achieving and unlocking the full potential that Tesla laid out,” Dorsheimer said.
Expanding manufacturing capacity and achieving breakthroughs will require big investments, Musk said.
“We saw Battery Day as a call to arms to governments, suppliers, investors and engineering talent to take it up a notch,” Morgan Stanley analyst Adam Jonas wrote. “They need to significantly accelerate policies and investments in Tesla’s hegemony of battery manufacturing,”
To help meet this demand, Tesla announced that it will be manufacturing its own battery cells. Also, it will continue to source battery cells from existing suppliers.
Price Target Raised On Tesla Stock
Deutsche Bank analyst Emanuel Rosner upgraded Tesla stock to a buy, from hold. He also raised his price target to 500, from 400.
“While investor expectations into the event were high, Tesla’s plan to achieve 56% reduction in battery cost over the next 3 years came in considerably better than anticipated, and could materially boost its volume and margin outlook,” he wrote. “Battery Day showcased impressive trajectory for its technology, capacity and cost, which should help accelerate the world’s shift to electric vehicles and extend Tesla’s lead considerably.”
Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.
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