Anticipation mounts over reputed plans from Tesla (TSLA) to unveil a newly developed battery later this month that will last for 1 million miles before it conks out. Analysts believe such a milestone will be yet another catalyst for Tesla stock.
The million-mile battery could profoundly change the business model of electric vehicle manufacturing, analysts say. It also offers Tesla the means to significantly reduce the cost of making electric vehicles. Plus, the cost of owning its cars also could come down, providing Tesla with a huge competitive advantage.
The battery has been a topic of conversation since April 2019 when Chief Executive Elon Musk promised Tesla would achieve this milestone. The lifespan of the new battery is about double what Tesla currently offers.
“Battery technology is the heart and lungs of Tesla and the linchpin to its success,” Wedbush analyst Daniel Ives said in an interview with Investor’s Business Daily.
If Tesla achieves the feat, analysts expect the unveiling to take place Sept. 22 at the company’s manufacturing plant in Fremont, Calif. The day starts with Tesla’s 2020 annual meeting of stockholders. It’s immediately followed by the event that Tesla calls Battery Day.
Should the million-mile battery be unveiled, it could define where the electric car company heads over the next several years. Musk hints the event will be one of the most exciting days in the company’s 17-year history.
Advantages That Could Fuel Tesla Stock
“What separates Tesla from the competition, aside from Musk and the Tesla brand, are batteries,” Ives said. “I believe they will announce a timetable for the manufacturing of a million-mile battery, which will provide them a massive competitive advantage.”
Ives also thinks Tesla might become a third-party supplier of batteries within 12 to 18 months. That could lead to a “significant increase in valuation of its battery business.”
Batteries are the most expensive components in electric vehicles. Suppliers of those components have a chance to reap the lion’s share of industry profits.
“Battery Day will be the most pivotal event for Tesla since the buildout and launch of its ‘Gigafactory 3’ in Shanghai, but with much more ramifications long term,” said Ives.
The factory in Shanghai is the third manufacturing plant built by Tesla. There, it makes the Model 3 and Model Y, as well as batteries. Analysts expect the million-mile battery to be made there.
Ives recently raised what he calls his “bull case” target on Tesla stock to 700, from 500, split-adjusted. His current price target is 380 but he thinks 700 is realistic if the China growth story continues to play out.
Million-Mile Battery Competition
Tesla isn’t alone in pioneering new battery technology. A China-based company named Contemporary Amperex Technology claims to be preparing a battery that will last 1.24 million miles.
Contemporary Amperex is one of the largest producers of rechargeable cells for plug-in vehicles. It’s also a supplier to Tesla, as well as to Volkswagen Group (VWAGY) and BMW (BMWYY), among other auto manufacturers.
Further, General Motors (GM) said in May it was also working on a million-mile battery. A company executive said GM was “almost there.”
In March, GM said it would spend $20 billion by 2025 to launch a range of batteries and electric vehicles.
Whatever the competition has to offer, Ives said, Tesla has one huge advantage.
“A lot of this is about scale and scope. Others can claim to have a million-mile battery, but only one is in position for mass production,” Ives said. “That would be Tesla at its factory in Shanghai.”
New Methods Of Tesla Manufacturing
At the Battery Day event, analysts expect Tesla to make critical announcements about manufacturing. That includes its plant under construction near Berlin. It involves a “radical redesign” in the way Tesla will build its Model Y at the Berlin plant, Musk revealed in a series of tweets.
“Berlin Model Y is the one to watch,” Musk wrote in a tweet on July 10. He said it involves “a revolution in automotive body engineering (finally).”
The Model Y is a crossover vehicle. Musk has said it will be more successful than the Tesla Model 3, Model S and Model X combined.
Musk also tweeted that the Berlin plant “will have world’s most advanced paint shop, with more layers of stunning colors that subtly change with curvature.”
Big Boost In Tesla Stock Price Target
Jefferies analyst Philippe Houchois says as more companies introduce electric vehicles, its competitive edge may start to shrink. However, its advantages will continue to widen in multiple other dimensions. This includes everything from brand leverage and software to battery capacity and industrial efficiency.
“In our view, nothing matters more on Battery Day than understanding how the million-mile batteries could profoundly change the auto business model,” Houchois wrote in a note to clients. “To what extent will million-mile batteries upend the way the industry designs, manufactures and sells cars?”
Houchois recently raised his price target on Tesla stock to a split-adjusted 500, from 240. He says the long battery life offers high resale value on Tesla vehicles when owners trade in their cars.
“We are still early in the transformation of the auto industry,” Houchois said. “Most critical is the million-mile battery and we assume Tesla will set new benchmarks and ambitions for battery density, materials and industrial processes.”
Tesla stock is up about 360% this year.
Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.
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