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Ahead of Tesla Battery Day, Credit Suisse is raising its TSLA price target to $400 from $280, claiming "batteries are Tesla's pillar of growth for the next two decades."
Batteries as a pillar for growth - Master Plan Part 3
Credit Suisse expects Battery Day to effectively be 'Master Plan Part 3." They write that Tesla has suggested a long-term battery capacity of 2 TWh--more than 30x its current capacity. This sharp increase supports growth in three areas: auto, stationary storage, and supply to others. Specifically, in auto, battery growth underscores Tesla’s ambition of selling 20M vehicles/yr, which would make it 2x the size of Toyota (the world’s largest automaker), and is 40x Tesla’s volume this year. While the firm sees this as overly aggressive, they nevertheless foresee Tesla reaching 5M units over time; market share gains of Japanese OEMs in the US in the 1980s/90s serves as a precedent.
Insourcing central to lower cost
While Tesla will maintain partnerships with other cell makers, the event is expected to highlight plans for Tesla to insource. Specifically, a robust battery manufacturing process is central to achieving scale and driving cost down.
Battery cost reductions central to driving growth
Credit Suisse expects Tesla to demonstrate it has multiple paths to reducing cost, both in the battery pack itself (potential target of ~ $75/kWh), and outside the pack. Cost reduction is likely to be a key aspect of Tesla strategy, as it can help to unlock sales at lower pricepoints, and thus fuel further growth. Tesla's approach in China serves as a case study for how lower cost can drive volume.
Significant aspirations for battery performance and energy density provide Tesla with another path to reducing cost.
Supporting the stock price, raising PT
Even if Tesla provides overly ambitious aspirations at Battery Day, Credit Suisse nevertheless expect the event to reinforce Tesla's long-term growth narrative. The growth story is central to the stock, while reinforcing investor perception that Tesla is ahead of other automakers. The firm raises its '20 EPS to $3.33 from $2.55 and PT to $400 from $280. An energized growth narrative reinforces Tesla's elevated stock price, and thus supports a wide cost-of-capital advantage.
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