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Tesla Inc (The Battery Company) Is In Big, Very Bad Trouble

Tesla, Inc

Tesla Inc is a battery company. According to some extreme views of the business, Elon Musk’s advantage is in building batteries. The rest of the firm’s output is just a way of selling them. If you agree with that view, now may be the time to think about selling the firm’s stock.

Bloomberg released a report on Wednesday predicting that the future of batteries is heading way west of Reno, Nevada. Though Tesla is building the worlds most famous battery building, the future of production is in China. According to the report more than 120 Gigawatts of annual production will be added in the country through 2021. That could make Tesla Inc battery ambitions dead-in-the water.

There is a bright side for investors here. Tesla isn’t actually a battery company. Treating the stock like that is similar to assuming Apple sells high res screens. Its reductionist, wrong, and a sure way to lose your shirt shorting the “battery” firm.

Tesla batteries may be beaten

Bloomberg says that Tesla will only have about 35 gigawatt-hours of annual capacity at its Nevada factory come 2018. The report also states that global capacity is going to hit around 273 gigawatts in 2021, more than double what it is today.

Tesla Motors Inc (NASDAQ:TSLA) Powerwall

Tesla is, however, trying to find four new worldwide sites at which to start new massive “Gigafactories.” If the firm follows through on that promise the increase in worldwide battery production could be truly massive. One of the factories that Elon Musk is looking into sits in Shanghai, at the heart of China’s industrial production. That means that even if China is the world leader in production, a part of that output might actually be from Tesla Inc .

Tesla is not a battery company

The Tesla Inc battery is one of the firm’s big advantages. It is, of course, not the only one. The firm produces the best electric vehicle out there, and it’s about to expand into a bunch of new markets. Sure the battery is a big part of that, but Tesla isn’t in the commoditized energy business.

Between its solar roofs, its cars, and everything it has planned for the future, Tesla is going to need a whole lot of batteries. It’s a key part of the business. In spite of that Musk and co. started off using pretty generic Li-ion cells. If it comes to it the CEO would likely be happy to give up battery tech gains in order to significantly lower prices.

A battery company is one that has a massive competitive advantage on its cells. Although the firm’s Reno factory is pumping out very high-density power packs, that’s not the only reason shareholders reckon Tesla is going to the moon.

Getting the supply chain right

To some degree it doesn’t matter whether or not Tesla Inc is a battery king. All that really matters is that the firm is able to supply its own needs. That after all is what the Gigafactory is really for. Doing that will allow Elon Musk’s team to have greater control over costs and technological progress. Those are two areas that he has put focus on in recent years.

Tesla Powerwall v GM Home Battery

One of Elon Musk’s big worries as the Model S began to sell well was the shortage of batteries. He saw that any restraint in that area could hold his firm back. The result of that risk assessment is the Reno, Nevada Gigafactory. Chinese battery makers, as a result, realized the world was changing. Now both supply and demand in the battery market are increasing.

The important point for Tesla Inc, however, is that the firm’s production is not harmed if demand outstrips supply. It also wants to be sure that price rises won’t cut into its margins. On both fronts the news from China is good. It may even have some less tangible benefits as the EV market matures.

Boosting Tesla Inc with batteries

The dream of Tesla Motors is to alter the world’s mix of automobiles from 100 percent fossil fuel to 100 percent, or thereabouts, electric. In order to get there the world is going to need a whole lot of batteries. Whether or not they come from China doesn’t exactly matter. What matters is that enough people are convinced of their usefulness to allow Tesla growth in the market as a whole.

Tesla Inc TSLA Autopilot NASDAQ:TSLA
Model 3 Design. Source: Tesla Motors

As more of the total car fleet becomes electric, more consumers will become used to the tech. This will help to kill “range-anxiety” and the other obstacles preventing ordinary folk from buying in. The more electric cars are out there the better this and other externalities will get for the firm.

Not every car has to be a Model 3 for those with Tesla stock to make money, and the more cheap batteries there are on the market, the better it is for its financials. That’s one of the reasons why those viewing the firm as a battery builder won’t be able to understand its share price increase.

There’s a whole lot of value in Tesla Inc, including the firm’s brand, that can’t be read in the space between Li and ion. If you think Ludicrous mode, Elon Musk, and over-the-air updates don’t add value, then you’re probably analyzing the wrong stock.

Tesla stock is still rising

Despite the bombshell report from Bloomberg on Wednesday, Tesla Inc stock was rising. At time of writing shares were sitting at $370.90. That’s an increase of 2.35 percent over its opening price.

That move really means one thing. Those who are buying into Tesla aren’t buying based on the idea that it’s a battery maker. Right now the Model 3 is the true driver of the stock price. There’s going to be volatility based on whether or not the firm can reach delivery targets, but not based on over-abundance of batteries.

The next round of Model 3 volatility will likely come in the next week. Tesla is supposed to reveal its quarterly delivery numbers around the start of July.

Apple stock doesn’t move when there’s going to be an abundance of high density screens coming into production. Nor does it change if batteries are getting cheaper. If anything, because of network effects, cheaper batteries are better for Tesla Inc. Don’t try to explain that to those holding the stock short on Wednesday, however.

All trading carries risk. Views expressed are those of the writers only. Past performance is no guarantee of future results. The opinions expressed in this Site do not constitute investment advice and independent financial advice should be sought where appropriate. This website is free for you to use but we may receive commission from the companies we feature on this site.
Adrian Smith

Adrian Smith is a finance and tech writer and currently working on a Masters in Business Information. He has developed a keen interest in all things finance and technology and loves to write about it.

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