Yahoo Finance Tesla's electric car plans are simply 'fantasy', warn analysts
Making an affordable Tesla electric car "has always been our dream from the beginning of the company", according to Elon Musk.
Indeed, the billionaire took a step forward in that ambition on Tuesday when he unveiled his plans to build a $25,000 (£19,650) electric car and cut battery costs in half over the next three years.
To help reach that goal, Musk unveiled a series of innovations, including making the battery a structural element of the car and creating larger cylindrical cells that will provide five times more energy and six times more power.
Musk said Tesla would eventually produce 20m cars a year. If all goes to plan, he believes costs can decrease 56pc, vehicle range would increase 54pc and investment in gigafactories would come down by 6pc.
The Tesla chief gave his speech in front of an audience of parked Teslas against a backdrop of smog from the fires that have ravaged California. The dystopian backdrop could not have worked better for a man spelling out his version of a renewable future for the automotive industry.
But the news failed to inspire investors with $50bn wiped off its stock market value. Shares closed down 5.6pc and dropped another 6.9pc after hours.
"Nothing Musk discussed about batteries is a done deal," said Roth Capital Partners analyst Craig Irwin. "There was nothing tangible."
Musk has got some way to go to convince investors that his plans are achievable.
For instance, the entrepreneur said that he wanted to reduce the use of cobalt, often referred to as the “blood diamond” of batteries, to almost zero.
“The issue is separating what’s commercially real and achievable and what’s a dream,” says Benchmark Minerals managing director Simon Moores, who describes the plans as "fantasy".
“Tesla has put out a lot of big statements to do with zero cobalt in the batteries, to do with how they make cathodes, especially on lithium, and they make it sound like they can do it now. They make it sound like it’s easy but the reality is it’s far more difficult than that.”
Moores says having zero cobalt in the battery puts the “entire vehicle at risk from fire and destabilisation”.
Then there’s the issue of manufacturing the cells. Musk tweeted on Monday that Tesla would have to make its own battery cells in Berlin and Fremont to meet its ambitious goals, alongside increasing cell purchases from the likes of Panasonic and LG.
"However, even with our cell suppliers going at maximum speed, we still foresee significant shortages in 2022 and beyond unless we also take action ourselves," he wrote.
It is a move other carmakers have shied away from given their lack of expertise and the high investment costs.
“I’m really surprised that they’re taking that leap themselves,” says Tony Posawatz, a consultant who sits on the board of Tesla rival Lucid Motors. “I think this is going to be a bit harder than what they think, and I don’t think we’ll see a lot of volume out of that for quite some time.
Musk also claimed to have a partnership in place with a Nevada project that will extract lithium from clay without disturbing the environment. He did not give much detail beyond it.
“Lithium clay has never been commercially achieved,” Moores says. “They really simplified it by saying they wash the clay with water and the lithium comes down and we put it back in the ground. I mean, it’s not that simple.”
Musk’s ambitions did impress some however.
Founder of research group Radio Free Mobile Richard Windsor says the lack of “fluff and hyperbole” gave Tesla much better credibility on the advances it was touting.
“It does show that Tesla is continuing to push the boundaries of electric vehicle technology which combined with a substantial turnaround in its financial performance ensures that it will be a major player in the next generation of vehicles,” he says.
Despite the positivity, Windsor admits that Tesla’s stock, which has revelled in an incredible year, is at a “ludicrous valuation”. He says the company’s share price had been driven by “sentiment and hype and has no connection with reality whatsoever.”
The company’s valuation has soared throughout 2020, placing Musk as the third-wealthiest man in the world with a $75.2bn increase in his worth.
But the lag between the announcements made at Battery Day and their ultimate effect could lead to investors pouring out of Tesla.
“With Battery Day completed, we believe there is a lack of upcoming catalysts and are cautious about demand given the recessionary environment, particularly given Tesla’s premium valuation,” says senior research analyst at Baird Ben Kallo.
Tesla’s future is undoubtedly bright, but many believe lean times are on the horizon for the company’s stock.
