Sober investors hope to get a buzz from Tesla’s ‘battery day’

Carmakers’ annual meetings can be drab affairs: executives reading from a script, votes decided by big investors who don’t bother turning up, and perhaps the odd small shareholder deciding to take a pop at management. Tesla is different. This week’s event will be livestreamed around the world, with investor hype over what the company is teasing as its “battery day” reaching Steve Jobs/iPhone levels of fever pitch.

Tesla has already achieved astonishing things, almost singlehandedly spurring the car industry towards its electric future while growing its own revenues from $100m in 2010 to $24.6bn in 2019. Now investors hope that chief executive Elon Musk will be revealing a technological leap relating to battery power on Tuesday to put it further ahead of its rivals.

The lead Tesla has is significant already. Analysts at Moody’s, the influential credit rating agency, judge that Tesla and China’s Beijing Automotive will be ahead of other major carmakers in zero-emissions car production until at least 2023.

Patrick Hummel, an analyst at investment bank UBS, said he was expecting news of a battery containing so-called dry electrodes. These would be produced with a simplified manufacturing process that does not require energy-intensive drying before the electrodes are fitted in batteries. The rewards for developing that technology are potentially enormous for an electric carmarker, removing some of the obstacles to breaking the stranglehold of fossil fuels. Dry electrodes are expected to deliver gains in energy density of as much as 50%, and they could be cheaper to make too. They could also allow Musk to achieve his professed aim of eradicating ethically questionable cobalt from Tesla‘s batteries.

Even if Tesla is not ready to transition to an entirely new type of battery, updates in the chemistry of its existing cells could also offer extra longevity, with high hopes the coveted “million-mile battery” will be unveiled. Perhaps most importantly of all, analysts will be watching for signs of reductions in the cost of any electric car’s key component: the battery price premium remains a major disincentive in the way of increased take-up by consumers.

All of the considerable hype comes with a buyer beware warning attached. For all that he has achieved, Musk has a track record of over-enthusiasm. Chris McNally, an analyst at Evercore ISI, an investment bank, said it would be wise to be wary of longer-term claims, pointing out that it has been four years since Musk’s first claims about his cars’ potential ability to fully self drive.

Still, the hype has delivered quite astonishing returns for shareholders – whether that be otherwise steady Scottish investment managers such as Baillie Gifford or an army of retail investors, who have propelled its share price from below $50 to $500 at the start of this month. It was back just above $420 (a symbolic level for Musk) last week. The market value of those shares, at over $400bn (GBP300bn), is worth more than the four largest carmakers by volume combined – even though Tesla produced only 360,000 cars in 2019 against 36 million from the traditional manufacturers.

At the moment the gap between valuation and production reality is filled with Musk’s vision, but analysts are hoping for more detail on Tesla’s plan to move from disruptor to major player. Key to that could be efforts at vertical integration – owning the supply chain, from the mine upwards, for battery materials such as nickel.

Whatever Musk reveals to his adoring fans, even normally reserved bankers are getting excited. Hummel said he expected significant progress, “cementing Tesla’s cost and technology lead for several more years”.

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