Morningstar

Tesla's Battery Day Shows Path to Fight Climate Change

We expect to increase our fair value estimate by about 13%.

Securities In This Article
Tesla Inc
(TSLA)

Given Tesla’s TSLA stock's incredible runup, we were skeptical that its long-awaited Sept. 22 Battery Day event would meet market expectations and the stock fell about 7% in afterhours trading. We liked what we heard, though, and new products, such as Plaid Mode for the Model S due in late 2021 and a $25,000 vehicle in about three years, bring opportunities for more volume. CEO Elon Musk said he expects 2020 delivery growth of 30%-40%, which puts 2020 deliveries close to or over 500,000 versus the 400,000 we model. Based on continued strong demand for Tesla’s vehicles, we are increasing volume deliveries for 2020-29 by about 10%. This increase along with battery cost reductions outlined at Battery Day led us to increase modeled revenue for the energy storage business across 2020-29 by about 33%. As a result, we expect to increase our fair value estimate by about 13%.

Battery Day was a paradigm-shifting presentation designed to move the whole industry faster toward exclusively using sustainable energy. The presentation focused on how Tesla can reinvent battery production to get a 56% reduction in the cost per kilowatt-hour with factories capable of 1 terawatt-hour of cell production that are smaller than its 150 gigawatt-hour Nevada plant. The current pack cost is a secret, but we suspect it’s below $150 per kWh. These cost reductions will enable the $25,000 vehicle which Musk feels is important because electric vehicles still are too expensive. Tesla also wants the world to think in terawatt-hours now instead of gigawatts and outlined revolutionary manufacturing techniques around cell design and cell manufacturing. The goal is to have the world adopt these techniques to bring all battery makers annual cell capacity to a combined 20 terawatt-hours to take the world off fossil fuel for any application, autos or otherwise. Tesla’s 2019 cell capacity was about 0.1 terawatt-hours and targets its own cell capacity of 100 gigawatt-hours by 2022 and 3 terawatt-hours by 2030.

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About the Author

David Whiston, CFA, CPA, CFE

Strategist
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David Whiston, CFA, CPA, CFE, is a strategist, AM Industrials, for Morningstar*. He covers stocks in the automotive industry, including dealerships, parts manufacturers, and automakers. He has covered the automotive industry since joining Morningstar in 2007. He writes stock reports, ad hoc reports, stock analyst notes, and builds discounted cash flow models for each company covered. He also assesses their economic moat and makes frequent television and print media appearances in local, national, and international news outlets. Key stocks covered include GM, Ford, CarMax, and all six publicly traded franchise auto dealers, such as AutoNation and Penske Automotive Group.

Before joining Morningstar in 2007, Whiston spent four years in PricewaterhouseCoopers’ New York real estate audit practice and one year in its Chicago office working on real estate acquisition due diligence, gaining experience around assessing an asset’s cash flow.

Whiston holds a bachelor’s degree in business administration with a concentration in accounting from the University of Richmond’s Robins School of Business. He also holds a master’s degree in business administration with concentrations in finance, economics, and organizational behavior from the University of Chicago Booth School of Business. He holds the Chartered Financial Analyst® designation, and he is a Certified Public Accountant and a Certified Fraud Examiner.

In 2012, he ranked first in the specialty retailers and services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey. He ranked first in the same industry in 2011 .

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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