Tesla (NASDAQ: TSLA) Battery Factory Investing

Tesla Earnings Fall Short

By Justin Williams
Thursday, November 7th, 2013

Tesla Motors (NASDAQ: TSLA) has become the darling of the auto industry for its innovative, high performance electric vehicle. So why, then, are its shares losing steam?

Shares have been riding high for quite some time, and many have been waiting for a correction. Even CEO Elon Musk challenged prices when not long ago he said his car company was overvalued.

muskAnd so, as Tesla’s third-quarter earnings report was released, shares fell. And they fell further today, even after analysts said on Tuesday that the reaction to Tesla’s third-quarter earnings report was hasty and uncalled for.

But no matter what Wall Street says, it isn’t going to faze Tesla. If anyone has had its doubters in the past and seen its share of adversity, it’s Tesla. The company has had to push through the nonsense to become one of the most acclaimed auto companies in the industry.

Staying right in line with business as usual, the EV manufacturer recently entered into a new partnership with Japanese firm Panasonic (OTC: PCRFY) to address Tesla’s battery issue.

Tesla and Panasonic already had a deal signed stemming from 2011 that would supply the auto maker with enough battery cells to build approximately 80,000 cars over 4 years. But that agreement didn’t account for Tesla's current rate of growth.

Tesla is on track this year to deliver more than 21,500 of its Model S sedans, according to Forbes, and it just started selling them to international markets. It will also be rolling out the new Model X this coming year, followed by a third generation vehicle that will have an appealing price tag – right around $30,000 – all of which will require many more batteries, and hence the new contract with Panasonic.

The one problem the two companies will face together is that of the lithium-ion battery technology. While Tesla has proven all of its naysayers wrong with its EV, the battery is still somewhat lacking in terms of storage capacity, performance, and cost. And while its battery costs less than its fuel cells, they don’t produce any electrical power, only the storage of energy.

Latest Earnings

This may have been part of the problem in Tesla’s latest report.

Tesla opened yesterday at the start of NASDAQ trading at $154.81. Shares then began to plunge, falling to $146.35 before rebounding. By mid-afternoon, they were trading at $152.25, according to USA Today, down 13.89 percent from Tuesday's close at $176.81.

Today, shares opened down at $144.08. They closed 7.5% lower at $139.77.

Some believe the roller coaster ride isn’t over quite yet, and shares could settle around $140 when the dust clears.

The numbers never lie, and the release of Tesla’s third-quarter report was somewhat disappointing to forecasters who expected deliveries of Tesla’s Model S to be higher than the actual 5,500 – even though this 5,500 was higher than founder and CEO Elon Musk's estimates, according to USA Today. Analysts, meanwhile, had expected roughly 5,850 deliveries in Q3.

As Musk made forecasts for the fourth quarter, he announced expectations that 6,000 units would be moved – far fewer than what others had envisioned.

Supercharging

All of this can directly tie into Tesla’s battery. With Q3 earnings, you can see where Tesla has fallen short, and it starts with the battery.

That’s why Tesla is fully committed to its Supercharger stations, which are being set up across the country to fulfill the needs of Tesla drivers. The system of Superchargers that is underway should be able to support a cross country trip by the end of the year. A Supercharger station can have a driver powered up and ready to go in 20 minutes flat.

This will boost demand for the EV and, essentially, the battery as well. In order to manage that demand, it was imperative that Tesla ink a new deal with Panasonic.

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What is perhaps even more interesting is that after Tesla and Panasonic signed their new deal, Musk started making comments about what he’s calling a “giga factory” – a massive battery factory that would be wholly owned and operated by Tesla itself.

Musk said, according to The Verge:

“This is going to be a very green factory. There's going to be a lot of solar power. It's going to have essentially zero emissions and there are no toxic elements that are going to come out ... and we will build recycling capability right into the factory.”

If this state of the art facility ever comes to fruition, alongside its partnership with Panasonic, Tesla's whole battery supply issue can be laid to rest.

As part of the new deal, Panasonic will produce 2 billion new lithium-ion cells for Tesla over the next four years. Together, the two companies will also develop a new battery for use in future Tesla EVs.

The Play

Tesla vehicles can now be found in Europe. This has given the company enormous potential, but it also slows down deliveries in the U.S., which will make sales growth sluggish in the short-term.

In my opinion, expectations for Q3 were put up on a pedestal, giving the company no place to go but down.

But Tesla is growing, faster than its current abilities will allow, and it is working out its battery supply and infrastructure problems. Tesla has already achieved so much in design and technology; I don’t expect this downward trend to last forever.

Even though it's hit that $140 mark, it will bounce back as the company powers on.

We must remember that Tesla stock was up nearly 400 percent for the year before its earnings report on Tuesday. How high could it really go?

Over time, sales will shoot up, its shortcomings will be a thing of the past, and by the end of Tesla’s agreement with Panasonic, in four years’ time, Tesla will have reached over 100,000 EVs sold – five times its 2013 total.

Tesla is still the belle of the ball in my eye.

 

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