Few companies can match up to Tesla’s (NASDAQ:TSLA) meteoric rise to fame this year. The electric vehicle company started the year on a low note, when it was forced to shut down its plants at home and abroad in lieu of the pandemic. This dampened production levels and put Tesla stock in jeopardy.
Thanks to the resilience of its tenacious CEO, Elon Musk, the company reopened its plants, defying government orders. A triumphant comeback in the months that followed. The company stock rallied at an impressive 437% this year and has a market capitalization of $375 billion.
Despite its successes, Tesla stock dipped this week, after Battery Day. The event hosted by Elon Musk on September 22, discussed the new technologies that could potentially drive down the costs of producing electric vehicles.
Tesla’s stock fell by 7% in the after-market hours.
Tesla Stock Falls After Battery Day
At Tesla’s socially distanced Battery Day this year, the company made some big announcements about the future of its vehicles. The highlight of the event was Musk’s plan to build an electric vehicle for just $25,000; with the help of low-cost batteries. A car at this cost could push Tesla into the mainstream market and make it the biggest automaker in the world.
But while this should have been great news for shareholders, the company’s share price fell in the after-market hours.
The ambitious plan outlined by Musk did not come with a definite timeline or budget, only stating that it would take three years for the company to successfully lower the cost of the batteries.
The CEO, known for his grandiose claims left many investors a little skeptical.
Big Announcement From Tesla
Tesla also announced that it working on a new battery at its Fremont plant which would make its cars more affordable. This would be a huge win for the company. The current battery, which is made up of millions of cells, is the most expensive part of the car.
The newer version will feature a different design and will be manufactured with fewer cells.
It will also be six times more powerful than the batteries Tesla currently uses in its cars. Tesla outsources its battery production to Panasonic but the slow pace of production at the supplier’s plant has resulted in delays for Tesla.
The new batteries could push Tesla into the mainstream market and create massive gains for investors. But until there is tangible progress on the new technology investors remain wary of the optimistic goals.
It’s All In The Numbers
In line with the new batteries which will lower the cost of producing cars, Musk detailed the company’s production numbers for the upcoming year. Vehicle deliveries are expected to increase by 30-40% from the previous year. The total number of cars produced by Tesla in 2019 amounted to 367,500. The new guidance for the next year is set between 477,750 and 514,500 cars.
If Tesla is able to deliver on its promise, the total number of deliveries for the year would amount to 500,000. This is just below its pre-pandemic estimate.
In order to accommodate the increase in production capacity, Musk also announced that the company will open its first European car assembly plan in Berlin along with a second plant in Texas. The CEO also believes that Tesla’s production plant in China will eventually reach a production capacity of 1 million.
Tesla’s ability to produce a large number of vehicles at scale has been one of the key reasons for the company’s reigning success.
The Bottom Line On TSLA Stock
Elon Musk’s ambitious plans for Tesla had many investors questioning the credibility of the goals. But if the company is able to keep its promise on the $25,000 electric vehicle and its expected production numbers, it will cement Tesla’s position as the leader of the auto industry.
The short-term dip shouldn’t deter investors from buying Tesla stock but use it as an opportunity to invest while prices are slightly lower. It’s also worth noting that in a pandemic economy that has left many companies on the brink of collapse, the automaker’s stock is up more than 400% this year.
On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020.
