What Cheaper Batteries Would Mean for TSLA Stock

  • Tesla (TSLA) is taking steps toward perfecting cost-effective batteries.
  • This would help the company reach CEO Elon Musk’s production goal.
  • According to experts, however, the process needs more time.
A close-up of the Tesla (TSLA) logo on the hood of a red Tesla car.
Source: Tudoran Andrei / Shutterstock.com

The road to the top of the electric vehicle (EV) race lies in battery production — or more specifically, the ability to streamline battery production and lower overall costs. Tesla (NASDAQ:TSLA) knows as much, now working hard to perfect its batteries ahead of competitors.

Of course, it hasn’t been an amazing day for TSLA stock so far, which is up less than 2%. But the company does have some exciting updates on the battery front. Reuters reports that, “by using bigger cells and a new process to dry-coat electrodes, Tesla could halve the cost of a Model Y battery, saving more than 8% of the car’s U.S. starting price.”

That type of achievement could change the face of EV production — not just for Tesla, but for the entire sector. However, there is a flip side. According to 12 experts tied to Tesla, the battery production technology is only about halfway toward being complete. Meanwhile, Tesla faces increasing pressure from international markets. Companies like Hong Kong’s China Aviation Lithium Battery Technology are also securing larger shares of the EV battery market at a time when Tesla needs to maintain the lead.

Let’s take a closer look at what TSLA stock investors can expect as the company maneuvers to stay ahead.

What It Means for TSLA Stock

It’s no secret that the recent supply-chain crisis has created plenty of obstacles for EV producers. Battery production is one of the most effected areas, as prices of nickel, cobalt and other battery metals have soared. Late in April 2022, though, Tesla reported that about half of its vehicles produced in the first quarter of the year were powered by lithium iron phosphate (LFP) batteries. This represented a significant step forward in battery production but was overshadowed by the company’s positive earnings report.

Since then, Tesla hasn’t issued any major battery updates until today. But this week’s news is important, as it could be foreshadowing a major growth catalyst. Experts note that Tesla is having trouble streamlining production because its technology is very new. Reuters reports the following:

“The dry-coating technique used to produce the bigger cells in Tesla’s 4680 battery is so new and unproven the company is having trouble scaling up manufacturing to the point where the big cost savings kick in.”

Even so, it’s important for TSLA stock investors to see the bigger picture here. Tesla has an impressive history of cutting battery production costs, which has been a consistent driver for shares. There’s no reason to assume the company can’t continue to trim costs even further. Some of the experts consulted by Reuters believe that Tesla will be able to lower production costs for the Model Y 4680 battery pack by as much as $5,500. Saving that much per vehicle would put Tesla in an excellent position to continue producing more EVs at a time when demand is skyrocketing.

CEO Elon Musk has set a goal to sell 2o million EVs per year by 2030. If Tesla is able to streamline battery production as experts predict, that goal will be well within reach. If — or when — the company meets it, TSLA stock will soar.

On the date of publication, Samuel O’Brient did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Samuel O’Brient has been covering financial markets and analyzing economic policy for three-plus years. His areas of expertise involve electric vehicle (EV) stocks, green energy and NFTs. O’Brient loves helping everyone understand the complexities of economics. He is ranked in the top 15% of stock pickers on TipRanks.


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