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Tesla’s 'battery day' on Tuesday could be ground-breaking for several sectors

There is speculation that among the electric car-marker's announcments may be a cobalt-free battery, using more of less costly metals such as nickel and manganese

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Tesla Inc (NASDAQ:TSLA) shares were down ahead of its “Battery Day” event on Tuesday, which is expected to have wide beyond just the company itself. 

Investors in the electric vehicle manufacturer and Musk’s army of fanboys and fangirls are charged up with excitement, while on the other side a battalion of Tesla bears reckon the whole thing could be an exercise in PR hype.

Battery Day follows straight after an annual stockholders’ meeting that starts at 13:30 Pacific Time, or 9.30pm for followers in the UK.

Only a very limited number of shareholders will be able to attend both of the events due to the current pandemic restrictions, with the Fremont, California-based company holding a lottery to select attendees.

The South African-born billionaire said earlier this year that the event will “blow your mind” and more recently added that there will be “many exciting things” to see.

However, on Monday, Musk cautioned on Twitter that the improvements unveiled at the event would not likely to reach “serious high-volume production” until 2022, which hit the stock.

Ramping up volumes and power

Back in a January earnings call, Musk explained that in order to ramp up production of the Tesla Model Y vehicle, introduce the new Cybertruck and launch its Semi electric truck, a lot more batteries would be needed.  

“The thing we’re going to be really focused on is increasing battery production capacity because that’s very fundamental – because if you don’t improve battery production capacity, then you end up just shifting unit volume from one product to another and you haven’t actually produced more electric vehicles,” Musk said. 

Tesla’s Model S has a 100 kWh battery pack giving it a range of around 400 miles, while the Porsche Taycan’s 93 kWh pack gives it 287 miles of range, while the Jaguar I-Pace has 90 kWh and a 292-mile range and the Mercedes EQC has an 85 kWh pack and a 259-mile range. 

Making the batteries even more efficient is a continued aim of all manufacturers, with Tesla’s looking to boosting its potential to do this with the acquisitions of battery technology businesses Maxwell and Hibar. 

READ: Tesla target hiked as UBS predicts significant announcements from upcoming battery event

Analysts at UBS say the market consensus is for some significant announcements to be forthcoming, “cementing Tesla's cost and technology lead for several more years”, leading the Swiss bank's target price to be hiked to US$325 from US$160. 

Those at Goldman Sachs, after Volkswagen's own battery day earlier this month predicted 300 gigawatt-hours of batteries will be needed in 2025, said they think the focus for Tesla will be on “production capacity expansion, battery cost, and new technology trends”.

While analyst Neil Wilson at Markets.com said many of Musk’s pronouncements on Twitter should be “taken with a pinch of salt”, he is also among those expecting some industry-rocking news at the event.

To deliver on its EV promise, Wilson said, “Tesla needs to own the battery space” as “without this, it’s not so different to an OEM”. 

“My expectation is that Musk is about to announce if not a leap then a progression in battery technology that brings EV costs down to, or close to, traditional automobiles. It would be a surprise if Tesla were not able to say it has made further progress on batteries that are more energy dense and have a longer life.” 

Lower costs and higher density

The manufacture of battery cells of 400 Watt-hours per kilogram (Wh/kg) with a high cycle should be possible in volume within three to four years, Musk said in August, which would be a high improvement on the current 260 Wh/kg in the Tesla Model 3.

This indicates one area of Tesla’s potential battery improvement. 

An image on Tesla's website promoting the annual shareholders meeting and Battery Day sparked more industry speculation, as it showed what appeared strands of silicon nanowire composed of tiny dots representing lithium. 

South Korean battery expert Park Chul-wan told Reuters that the image may hint at "silicon nanowire anode," a breakthrough technology that can greatly increase battery density and cell life.

Tesla is also working with China's leading battery producer CATL, which has signed a two-year deal to supply batteries to Tesla, and in other news claims it is developing a 1.2mln mile electric vehicle battery with a 16-year lifespan. 

Said Wilson: “If Tesla can both lower costs and increase battery energy density and life, it would be a significant step forward for the company and further cement its lead in the EV space. 

“However, given the recent rampant speculation on the stock and Musk’s capacity to somewhat overstate his case, there is a considerable risk of a buy-the-rumour, sell-the-fact trade.”

The UBS analysts say they expect a new battery cell technology, dry electrode design, to be at the core of the event, which would be likely to enable around a 50% higher energy density of up to 400 Wh/kg versus 260Wh/kg today, plus much better longevity - including the possibility of a million-mile battery.

They also estimate cell costs could be brought down to around US$70-80 per kWh over the next three or so years, saving US$2,300 per vehicle compared to today, with roughly a US$10-20 per kWh cost advantage versus competition.

Mining and chemicals sector impact

As many people eyeing the purchase of an electric vehicle have found, a major obstruction are the cars' high cost relative to petrol-powered internal combustion engine vehicles, so reducing the cost of the battery would be give any car company a huge headstart over rivals.

Some speculate that Tesla may announcing a cobalt-free battery, using more of a less costly metal such as nickel and perhaps introducing manganese, which has implications for parts of the mining sector.

READ: Nickel shows signs of life as Chinese inventories dry up, and memories of Musk's intervention linger

Analysts at Citigroup said With Tesla having roughly 30% of the pure battery electric vehicle (BEV) market this year, its innovations in battery performance and chemistry have “significant implications for EV metal demand” and so Battery Day “could impact sentiment towards battery metals demand”.

Citi forecasts that battery grade prices will rise by almost 40% by 2022, with nickel supported by net speculative purchases, EV hedging, and developments in China’s NPI and ore markets in the short term, but with medium term supply themes being bearish the analysts said, “we don’t recommend positioning for bearishness until LME positioning has peaked”.

“Cobalt might offer the most near term upside given strategic stocking but the medium-to-long term view is clouded by substitution risks.”

The UBS analysts agree there is potential for cobalt-free chemistry to be part of the announcement.

They noted that for Johnson Matthey, which hosted a forward-looking hydrogen seminar on Friday, the concept of a significant breakthrough in battery technology could “make it more difficult” for the FTSE 100 company to find a niche with its own 'eLNO' technology when it launches in 2023.

What's more, if Tesla accelerate EV penetration, it could mean a more rapid displacement of diesel and gasoline engines, with impact not only for Johnson Matthey's core catalysts technology, plus literally hundreds or thousands of other companies.

 

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Price: 420.63 USD

NASDAQ:TSLA
Market: NASDAQ
Market Cap: $392.67 billion
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