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Market expects key announcements on batteries at Tesla's industry event

Highlights

Talk of increased battery range

Musk nods toward 'mind blowing' announcement

London — There was much hype in the battery world Sept. 21, as attention focused on electric vehicle flag-bearer Tesla, and what it may, or may not announce at its Battery Day scheduled Sept. 22.

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Tesla's CEO Elon Musk is no stranger to controversy, nor speaking his mind, and it is for that very reason that many are betting on a big announcement from the company following its annual general meeting Sept. 22. Back in January, Musk, with not untypical bombast, said the event would "blow your mind." Recently he toned it down a bit, teasing "many exciting things."

Neil Wilson, strategist at Markets.com, said: "Whilst we should always take his pronouncements on Twitter with a pinch of salt, clearly there is a high degree of expectation and speculation -- and speculative buying of Tesla stock -- taking place in the run-up to the event."

According to sources, the main bet is on Tesla announcing the start of its own battery cell design and production, in house, allowing it to take control of the mine-to-mouth supply chain. At the moment, Tesla makes cells for its vehicles in conjunction with third parties, the biggest name being Panasonic.

"To deliver on its EV promise, Tesla needs to own the battery space. Without this, it's not so different to an OEM (original equipment manufacturer). Musk commented on this at Tesla's Q4 2019 earnings call in January, explaining that in order to ramp up Model Y production, introduce the Cybertruck and launch the semi electric truck, a lot more batteries would be needed," added Wilson.

Musk said separately: "So, the thing we're going to be really focused on is increasing battery production capacity because that's very fundamental because if you don't improve battery production capacity, then you end up just shifting unit volume from one product to another and you haven't actually produced more electric vehicles."

Cobalt content in question

Talking to S&P Global Platts Sept. 21, one broker said he expects Tesla will look to confirm it is making progress with its pledge of reducing cobalt in its batteries and outline developments around the "Million Mile Battery."

It is widely reported that Musk is aiming for a battery with a lifespan of a million miles, and one that is low cost enough so that EVs reach parity with traditional engines.

Also, ESG compliance has become an increasingly hot topic. As investors become more in tune with ESG requirements, miners are reacting to ensure they stay up to date.

Traceability of chemicals and metals used in the production of lithium-ion batteries, such as cobalt, is one of the main sustainability challenges faced by automakers.

The bulk of the world's cobalt comes from the Democratic Republic of Congo.

The broker added that technology such as the "the single crystal cathode will be a big step in increasing the lifespan of EV batteries. Other major announcements could include a new battery chemistry as well as an improvement in battery density and performance at a lower production cost following their purchase of Maxwell Technologies in 2019."

Seeing is believing

On the subject of technology, a senior industry source said that, although it's no more than a guessing game predicting what Musk may, or may not, say, "silicon at high loading would be a big step forward, but lots of people are trying unsuccessfully to achieve this."

"High silicon equates to a generally lower cycle life, so if Tesla can increase silicon and increase cycle life a lot of people will be scratching their heads," the source said.

The source added that the market needs to differentiate between what Musk "predicts may be possible and what he is definitely going to do [and is achievable]."

Adrian Lowcock, Head of Personal Investing at Willis Owen, an investment platform in the UK, echoed that sentiment: "Expectations from Tesla's battery day are high. Musk has a track record of making bold announcements with ambitious deadlines that are often not achieved, but with Tesla it is more often the target that is important, not the deadline."

"That said, given the recent performance of the share price this year and growing expectations, any disappointment on the day could have a significant impact on the share price," he added.

The Tesla share price underwent a 5:1 split earlier in the year, as the valuation had become prohibitive for smaller scale investors to trade. The stock closed the US trading day at $442.15/share Sept. 18, from a 2020 start -- adjusted to the 5:1 split -- of around $86/share.

Aug. 31 the share hit an all-time high of almost $500/share.