Tesla Motors Inc (TSLA) LMO or LCO Batteries: Which are Superior Asks JPMorgan

Tesla Motors Inc (TSLA) LMO or LCO Batteries: Which are  Superior Asks JPMorgan
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Is Tesla Motors Inc (NASDAQ:TSLA) the next big thing or grossly overvalued. Two new reports from analysts add to the confusion on the sell side.

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Tesla Motors Inc (NASDAQ:TSLA) Valuation

Tesla Motors Inc (TSLA) LMO or LCO Batteries: Which are  Superior Asks JPMorgan

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investor 1652197064Maverick Capital's flagship hedge fund lost -22.9% in the first quarter of 2022 according to a copy of the firm's quarterly update, which ValueWalk has been able to review. The firm's flagship fund, Maverick Fundamental Hedge, accounts for $3.7 billion of the group's $8.1 billion of assets under management. Even after losses in the first Read More

While Tesla is trading at $100, BAML has a $39 PO based on an adj. EV/EBITDA multiple of approx. 12X and an EV/Sales of roughly 1.4X their 2015e, both of which are derived using a scenario based valuation approach and a competitor set consisting of technology focused companies. BAML focused on 2015 as we believe it should represent a more normalized earnings and cash flow year for Tesla. Downside risks to the $39 price target 1) Inability to substantially lower operating costs and generate free cash flow, 2) slower than anticipated ramp in electric vehicle demand, 3) further setbacks for advanced battery technology, 4) fierce competition from well established OEMs, 5) a sharp and sustained rise in raw material costs, 6) an inability to execute efficiently with higher volume, 7 ) a reduction or end to Federal and State incentives for electric vehicles, 8) an inability to repay substantial DOE Loans, 9) low gasoline prices, 10) loss of key management, 11) a decline in luxury vehicle demand, 12) Material weakness in the internal control over financial reporting has been cited and could persist. Upside risks are 1) better than expected execution and cost containment, 2) a sharp and sustained rise in gasoline prices, 3) a breakthrough in advanced battery technology, 4) increase in Federal or State incentives.

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Tesla Batteries a problem?

JPMorgan analysts state in a new report that LMO is preferred over NMO by Auto OEMS thanks to its superior safety and stability features, but long-term mainstream still debatable To enhance the battery performance and procure cheaper solution, battery makers have exploited several options of Cathode material for automotive cell battery. LCO (Lithium Cobalt Oxide) was used in the original Tesla brand EV, but was declined by OEM due to safety concern. LMO (Lithium Manganese Oxide)/LFP (Lithium Iron Phosphate) was previously used for several EV line-ups already. NMC (Lithium Nickel Manganese Cobalt Oxide) has recently been adopted by major EV prototypes. NCA (Lithium Nickel Cobalt Aluminum Oxide) was used by Toyota PHEV Prius model.

According to JPMorgan check with battery makers, there are increasing preference of LMO over NMC thanks to its superior safety/thermal stability features. In the near term, they expect NMC to be used in a couple of line-ups due to its cost competitiveness. However, given none of the current technologies are good enough to break through the next stage, JPMorgan thinks that we likely see continuing debate among material technologies from one to another. This is one of the reasons Auto OEMs are not internally producing as they believe LiB is a bridge technology to understand the production process and would like to develop the next technology onward.

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In the near term, however, OEMs will have to rely on outsourcing the battery production from battery makers or form alliances to acquire the knowledge.

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