Tesla is planning its battery day for Sept. 22, and analysts and investors are looking forward to hearing what new developments the company has on it. The big topic of conversation lately has been a million-mile battery, but it may be too early for that technology.
UBS analyst Patrick Hummel outlined in a report today what he expects to see revealed at Tesla's battery day. He has a Neutral rating on Tesla stock and boosted his price target from $160 to $325 per share ahead of the battery day.
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Day to include proprietary battery technology from Tesla
Hummel expects some major milestones in battery technology and costs to be announced at Tesla's battery day. He believes the announcements will be significant, "cementing Tesla's cost and technology lead for several more years." He predicts that the centerpiece of Tesla's battery day will be a new cell technology with a dry electrode design.
Hummel expects the dry electrode technology to enable an approximately 50% higher energy density, bringing it up to about 400 Wh/kg, compared to the current 260 Wh/kg. He also expects the technology to bring much better longevity, possibly even being a million-mile battery.
Hummel also believes the battery could feature a cobalt-free chemistry and come with an estimated $70 to $80 per kWh cell cost over the next three years. That would save about $2,300 per vehicle compared to today's pricing. It could also bring a $10 to $20 per kWh cost advantage over the competition.
He believes Tesla will manufacture the cell in-house at the Fremont factory, although he also expects the company to maintain its current cell supplier relationships.
More than just battery technology
The UBS analyst expects Tesla's battery day to be about more than just new battery technology. In fact, he believes that in order for it to be a catalyst for Tesla stock, the event will have to feature something else in addition to battery technology.
He noted that some are speculating that there will be a Model S and Model X refresh, including a new "Plaid" top-end version, possibly equipped with the new battery cells. He added that the new cell design could also be used in the new Roadster, the most expensive Cybertruck model and possibly the Semi, although that's unlikely to be a focus on Tesla's battery day.
If there is no big "one more thing" on the agenda for the battery day, Hummel believes all the rest of his expectations are fully discounted.
Hummel sees little chance of a major milestone on full self-driving technology at the event, but when it does arrive, he said it will have a significant impact on the company's earnings. He also sees new entry-level models of the company's vehicles as being very unlikely. He thinks there is a chance that Tesla will reveal a new next-generation Supercharger, although it won't have much of an impact on the company's earnings numbers.
Tesla stock price target increased
Hummel increased his price target for Tesla stock because of increased volumes and margins. He said the take rate on the full self-driving package and a sustained lead in battery cost are also drivers, as is a higher AV revenue opportunity.
He expects Tesla to sell 2 million cars in 2025, which would be a 15% share of the global battery electric vehicle market. Hummel estimates an operating margin of 14% to 15% starting in 2023, which would make the company the most profitable automaker. However, with Tesla stock at 30 times estimated 2024 PE on his estimates, which are double those of consensus, he expects the shares to enter a consolidation period because the company's fundamentals won't keep up fast enough for another re-rating. In the near term, his estimated earnings per share for this year is mostly unchanged, and his estimated earnings for 2021 is 15% higher than before on higher volumes.