Tesla's value drops $50b on cheaper bat­tery prom­ises


In­vestors slashed $50 bil­lion from Tesla Inc's TSLA.O mar­ket value on Tues­day de­spite CEO Elon Musk's prom­ise to cut elec­tric ve­hi­cle costs so rad­i­cally that a $25,000 car that drives it­self will be pos­si­ble, but not for at least three years.

Tesla's mar­ket cap dropped $20 bil­lion in just two hours af­ter trad­ing closed Tues­day, as Musk and other Tesla ex­ec­u­tives pre­sented their new bat­tery and man­u­fac­tur­ing strate­gies. Shares closed down 5.6% and dropped an­other 6.9% af­ter hours.

"Noth­ing Musk dis­cussed about bat­ter­ies is a done deal," said Roth Cap­i­tal Part­ners an­a­lyst Craig Ir­win. "There was noth­ing tan­gi­ble." In­vestors had ex­pected two sig­nif­i­cant an­nounce­ments at Musk's oft-touted "Bat­tery Day": The de­vel­op­ment of a "mil­lion mile" bat­tery good for 10 years or more, and a spe­cific cost re­duc­tion tar­get -ex­pressed in dol­lars per kilo­watt-hour that would fi­nally drop the price of an elec­tric ve­hi­cle be­low that of a gaso­line car.

Musk of­fered nei­ther. In­stead, he promised over the next sev­eral years to slash bat­tery costs in half with new tech­nol­ogy and pro­cesses and de­liver an "af­ford­able" elec­tric car. "In three years . . . we can do a $ 25,000 car that will be ba­si­cally on par ( with), maybe slightly bet­ter than, a com­pa­ra­ble gaso­line car," Musk said. Musk ac­knowl­edged that Tesla does not have its am­bi­tious new ve­hi­cle and bat­tery de­signs and man­u­fac­tur­ing pro­cesses fully com­plete. Tesla has fre­quently missed pro­duc­tion tar­gets set by Musk.

Tesla ex­pects to even­tu­ally be able to build as many as 20 mil­lion elec­tric ve­hi­cles a year. This year, the en­tire auto in­dus­try ex­pects to de­liver 80 mil­lion cars glob­ally. Build­ing an af­ford­able elec­tric car "has al­ways been our dream from the be­gin­ning of the com­pany," Musk told an on­line au­di­ence of more than 270,000.

Tesla on Tues­day also in­tro­duced a new Model S Plaid, a 520-mile range sedan that can reach top speeds of up to 200 miles per hour (320 km per hour), with de­liv­er­ies start­ing in 2021. The Plaid was listed on Tesla's web­site on Tues­day at a price of nearly $140,000.

At the open­ing of the event, Musk walked on stage in a black t-shirt and jeans as about 240 share­hold­ers each sit­ting in a Tesla Model 3 in the com­pany honked their ap­proval.

To help drive down ve­hi­cle cost, Musk de­scribed a new gen­er­a­tion of bat­ter­ies that will be more pow­er­ful, longer last­ing and half as ex­pen­sive than the com­pany's cur­rent cells. Tesla's new larger cylin­dri­cal cells will pro­vide five times more en­ergy, six times more power and far greater driv­ing range, Musk said, adding that full pro­duc­tion is about three years away.

To help re­duce cost, Musk said Tesla planned to re­cy­cle bat­tery cells at its Ne­vada "gi­gafac­tory," while re­duc­ing cobalt one of the most ex­pen­sive bat­tery ma­te­ri­als to vir­tu­ally zero. It also plans to man­u­fac­ture its own bat­tery cells at sev­eral highly au­to­mated fac­to­ries around the world. Shares in two bat­tery sup­pli­ers to Tesla, South Korea's LG Chem 051910.KS and Ja­pan's Pana­sonic Corp 6752.T, fell af­ter the an­nounce­ment.

Tesla will pro­duce the new bat­tery cells ini­tially on a new assem­bly line near its ve­hi­cle plant in Fre­mont, Cal­i­for­nia, with planned out­put reach­ing 10 gi­gawatthour­s a year by the end of 2021. Tesla and part­ner Pana­sonic Corp 6752.T now have pro­duc­tion ca­pac­ity of around 35 gWh at the

park­ing car horns lot in

Ne­vada bat­tery "gi­gafac­tory." Tesla aims to rapidly ramp up bat­tery pro­duc­tion over the next years, to 3 ter­awatt-hours a year, or 3,000 gi­gawatt-hours roughly 85 times greater than the ca­pac­ity of the Ne­vada plant. Musk said Tesla could sup­ply bat­ter­ies to other com­pa­nies.

As au­tomak­ers shift from horse­power to kilo­watts to com­ply with stricter en­vi­ron­men­tal reg­u­la­tions, in­vestors are look­ing for ev­i­dence that Tesla can in­crease its lead in elec­tri­fi­ca­tion tech­nol­ogy over legacy au­tomak­ers who gen­er­ate most of their sales and prof­its from com­bus­tion-en­gine ve­hi­cles.

While av­er­age elec­tric ve­hi­cle prices have de­creased in re­cent years thanks to changes in bat­tery com­po­si­tion, they are still more ex­pen­sive than con­ven­tional cars, with the bat­tery es­ti­mated to make up a quar­ter to a third of an elec­tric ve­hi­cle's cost.

Some re­searchers es­ti­mate that price par­ity, or the point at which elec­tric ve­hi­cles are equal in value to in­ter­nal com­bus­tion cars, is reached when bat­tery packs cost $100 per kilo­watt hour (kWh). Tesla's bat­tery packs cost $156 per kWh in 2019, ac­cord­ing to elec­tric ve­hi­cle con­sult­ing firm Cairn En­ergy Re­search Ad­vi­sors.

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