The Overlooked Significance of Tesla’s Battery Day


I have said for years that Tesla (NASDAQ:TSLA) would one day be more of a battery company than a car company.

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Without question, Tesla has been a leader in advancing battery technology. And as electric vehicles (EVs) go more and more mainstream, the push for longer lasting, more efficient, and cheaper batteries is stronger than ever.

Anticipation of continued breakthroughs has helped fuel (so to speak) its stock’s moon shot this year.

I’m a huge fan of Tesla founder Elon Musk. He doesn’t fit the typical CEO mold and is prone to hyperbole, but he’s a visionary who makes things happen.

Tuesday was Tesla’s much-anticipated that Battery Day, and Musk didn’t unveil the million-mile battery that many had been hoping for. So there are plenty of articles categorizing the day as a disappointment.

But not so fast. There was one announcement that plays right into a massive opportunity …

Tesla’s stock dipped 10% Wednesday after Tuesday evening’s announcements, which I don’t think is bad at all considering how far it has run this year and that Musk didn’t confirm the fabled million-mile battery.

But he did say that Tesla will begin to make its own new kind of battery that will produce more power and increase range. The so-called “tabless” design is easier and cheaper to manufacture.

This brings us another step closer to the tipping point for EVs.

By reducing costs of its batteries, Tesla’s goal is to sell a fully electric car for just $25,000 within three years.

Anyone who’s followed Tesla knows you must take the timing on Musk’s announcements with a grain of salt. But whether Tesla gets there in three years, five years or longer, next-generation batteries make the trend toward cheaper electric cars unstoppable.

In 2018, the average cost for an electric vehicle with a 250-mile range was $44,000, which is 83% more than the $24,000 price tag of a Toyota Camry. With that $20,000 difference, the vast majority of car buyers stay with a traditional gas-powered vehicle.

But here in 2020, that price gap is expected to narrow to $9,000 as the average cost for an EV drops to $33,000. And within just two years, the average cost of a 250-mile range EV will fall to $24,000 — while the cost of the Toyota Camry rises to $25,000.

The first time an EV is cheaper than the average gas-powered vehicle will be a major milestone. The breakthrough will push a lot of prospective car buyers to at least strongly consider an EV … and that day is coming quickly.

Looking further out, the story becomes even more compelling. We’re not used to cars getting cheaper over the years, but EV prices should continue to fall. By 2024, the cost will swing greatly in favor of EVs. ARK Investment Management predicts EV prices will drop to $17,000 while the Toyota Camry remains constant at $25,000.

At that point, it’s a no-brainer.

How is it that EVs continue to get cheaper? Ongoing innovation and improvements to the battery. Tesla is working on it. General Motors (NYSE:GM) is working on it. Volkswagen (OTCMKTS:VWAGY) is working on it. Toyota Motors (NYSE:TM), too. The stakes are huge.

We’re already seeing significant progress. A few years ago, the battery made up about 57% of an EV’s cost. Last year, that percentage fell to 33%. And by 2025, it is projected to be just 20% of the cost of the vehicle.

Electric vehicles becoming increasingly more affordable is a big reason behind eye-popping growth forecasts. The Energy Industry Administration calls for sales to more than triple to 6.5 million units by 2024.

ARK Investment Management is even more bullish, predicting that 37 million EVs will be sold in 2024. That would be an amazing 79% compound annual growth rate (CAGR) and result in full-year revenue of $1.1 trillion.

Even if we basically split the difference and EV sales increase to 20 million units in the next few years, it is an easy 10X opportunity for investors.

Breakthrough battery technology will power vehicles of the future. This hypergrowth trend is already underway, but it’s still in its very early stages. That means now is the time for smart investors to get in position for potentially massive profits.

On the date of publication, Matthew McCall did not have (either directly or indirectly) any positions in the securities mentioned in this article.

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