Tesla’s TSLA much-anticipated Battery Day did not live up to the hype of investors. While Musk announced a series of vertical integration improvements and technological advancements, the fact that the company’s ambitious battery designs won’t make it to production for another couple of years did not go down quite well with shareholders. The stock lost 5.6% ahead of the flashy event as its CEO Elon Musk’s tweets might have dampened the sky-high expectations of investors. With no major surprises, the event did nothing to boost Tesla’s share price, which fell around 9% during the week.
Dissecting the Battery Day: Was it Really a Let-down?
Let's see what exactly went wrong.
Well for starters, for an event billed as “Battery Day”, no sample battery was shown. This was kind of disappointing and left people somewhat dubious of how close/far the company was from achieving its targets. While there were big talks on battery development and innovation, a prototype was missing, which could have otherwise instilled confidence in the minds of investors.
Well, a couple of days ago, Musk took to Twitter to clarify that its in-house batteries are deployed in test cars. His tweet read: “Suppliers. We’re only doing high energy nickel ourselves, at least for now. Also, maybe the presentation wasn’t clear that we’ve actually had our cells in packs driving cars for several months. Prototypes are trivial, volume production is hard.”
Okay, we buy that. Still, how can we forget what Musk said in 2014? His words were: "My top advice really for anyone who says they've got some breakthrough battery technology is please send us a sample cell, okay. Don't send us PowerPoint, okay, just send us one cell that works with all appropriate caveats, that would be great. That sorts out the nonsense and the claims that aren't actually true."
Didn’t Tesla do exactly the same thing by not showing at least one actual battery? Probably, Musk seemed to have forgotten his own words or ideology, which could have dismayed some.
Second, we did miss updates on ‘million-mile’ batteries! Tesla’s plans to roll out the new million-mile battery in collaboration with CATL grabbed eyeballs earlier this year. Tesla bulls had been betting high on the million-mile batteries, which could drastically reduce the cost of cars and upgrade the vehicles' expected battery lifespan. Sadly, investors, analysts and industry experts alike lamented the fact that there was no mention of the much-hyped million-mile batteries during the event.
Third, the delivery timelines of its future vehicle line-up wasn’t much encouraging either. Musk had been teasing the Model S ‘Plaid’ for quite some time. Last September, he tweeted that “the only thing beyond Ludicrous is Plaid’. Car enthusiasts had been eagerly waiting to get their hands on the $139,990, 1100-HP Model S Plaid model by the end of this year, but unfortunately, they will have to wait. The firm delayed the Plaid version of the Model S by one year. The deliveries of the same are now expected in late 2021. Moreover, Tesla’s new battery cell design — which won’t start serious high-volume production till 2022 — is likely to delay the launch of various other vehicles including Tesla Semi, Cybertruck and Roadster. The stylish and high tech Cybertruck, which was arguably the most anticipated electric pickup of 2021, doesn’t seem to hit the roads before 2022. The same applies to Tesla Semi Truck, which was unveiled in 2017 and was expected to be delivered in 2020 until the company announced that it is going to delay its deliveries till 2021 during the release of first-quarter 2020 results. Considering the Battery Day developments, we wouldn’t be surprised if Tesla Semi Truck is pushed back till 2022. While Tesla started taking deposits for Roadster in November 2017 and stated that one could expect deliveries by 2020, Musk hinted during the event that the deliveries of the vehicle might get delayed to at least 2022.
Fourth, probably people were expecting a specific cost-reduction target, expressed in dollars per kilowatt-hour, which would have enabled the company’s EVs to reach price parity with internal combustion vehicles. The firm did not share specific numbers about the new 4680 cell’s actual performance achieved during tests. While Tesla targets to slash battery costs by 50% and promises a $25,000 EV, that’s three years down the road! Also, one cannot overlook the fact that Tesla has a history of over promising and under delivering at times.Years ago, Musk promised a $35,000 starting price point for its ever-so-popular Model 3, but that was available only for a couple of months. He later backtracked and the cheapest Model 3 available now is worth $37,990. Musk’s self-imposed deadlines on the development of driverless cars have also been pushed back repeatedly.
Tesla’s Valuation in Question
While the Tesla Battery Day promised technology and manufacturing innovations, these were already widely expected and priced into the red-hot EV maker’s stock. Tesla’s leadership in battery technology is already fully valued into the stock and investors were rather let down by the lack of surprises at the event. Without an actual cell at display or published performance metrics, it felt as if something was missing. Basically, rather than improving the thesis for buying the stock, the event felt short of hopes and raised questions on the company’s high-flying valuation metrics.
Shares of Tesla have increased nearly fourfold so far this year. The company’s market capitalization is now worth more than many of its peers combined, including General Motors GM, Ford F, Fiat Chrysler FCAU, Volkswagen VWAGY, Honda HMC and BMW BAMXF. With Tesla registering eye-popping gains,the stock’s valuation has got out of hand. Tesla’s current EV/EBITDA stands at 108.23X, way higher than the industry’s 26.76X. As the stock seems pricey and its battery technology is still years away from being realized, it would not be a bad idea to tap the EV boom with cheaper alternatives.
Consider These Bargain Stocks Instead
General Motors: Of late, General Motors — which currently carries a Zacks Rank #1 (Strong Buy) — has been on a spree to revolutionize the EV space. The third-generation global EV platform powered by Ultium batteries will be the heartbeat of the U.S. auto giant’s electrified future. Recent partnerships with Honda HMC, EVgo, Nikola and Uber display General Motors’ ability to aggressively compete with established EV players and showcase its commitment to an electric future. General Motors’ current EV/EBITDA ratio stands at 8.38X, lower than the industry’s 26.76X. You can see the complete list of today’s Zacks #1 Rank stocks here.
Ford: Ford’s big push toward the development of EVs is commendable. This Zacks Rank #1 company is committed to spend more than $11.5 billion in EVs through 2022 by introducing zero-emission versions of some of the company’s popular vehicles. Ford’s alliance with Volkswagen is likely to accelerate the execution of its EV strategy. In collaboration with Electrify America, the firm’s FordPass Charging Network provides access to DC fast chargers. Ford’s current EV/EBITDA ratio stands at 15.55X, lower than the industry’s 26.76X.
Volkswagen: The German car giant is also betting big on e-mobility. This Zacks Rank #3 (Hold) company intends to invest about 60 billion euros toward the development of green vehicles and digital tech between 2020 and 2024. The firm aims 40% of its global car sales to be fully electric by 2030. Scheduled for a global debut soon, Volkswagen’s ID.4 electric SUV is based on the modular MEB platform. The deal between Volkswagen and Electrify America also highlights the automaker’s aggressive efforts to heat up the EV race. Volkswagen’s current EV/EBITDA ratio stands at 1.01X, lower than the industry’s 9.14X.
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