TESLA : Battery Day Fail ?

(Thu, 24 Sept 2020). Expectations for Battery Day were high but Tesla failed to satisfy investors. The company’s ambitious plans remain off in the future.

Wall Street had high expectations for Battery Day, which weren’t met. Innovations announced by Elon Musk will take several years to materialize. Tesla stock is overvalued and needs catalysts to go higher. Investors had elevated expectations about Tesla’s Battery Day, but it ended up being a colossal disappointment. Tesla CEO Elon Musk said some of the innovations showcased at the event were “close to working” and about three years away from materializing. Tesla shares opened more than 5% lower on Wednesday.

Promised Battery Day Innovations Are Off in the Future

Musk announced several production and manufacturing developments that could lead to better and cheaper cars. The multi-year calendar of improvements to be made and the lack of concrete goals disappointed Wall Street.

During a three-hour presentation in front of a parking lot filled with Tesla shareholders in their vehicles, Musk explained how the company would cut battery costs by more than 50% through vertically integrating manufacturing. He announced plans for a new $25,000 fully autonomous vehicle within three years and said the company hopes to produce three terawatt-hours of batteries by 2030. In the long run, he sees Tesla making 20 million cars a year.

The electric-car maker failed to deliver a one-million-mile battery as was expected. Expectations had been mounting for months before the event, which was delayed due to Covid-19. Musk himself stoked the excitement through tweets about the “many exciting things” that were about to be revealed.

On Monday evening, however, he took to Twitter to remind everyone that the announcements will affect “long-term production” and that developments “will not reach serious high-volume production until 2022”.

Some are questioning Tesla’s ability to reach its targets. Goldman’s Mark Delaney reiterated his neutral rating, while raising his 12-month target to $400 from $295.

Tesla Stocks Lacks Catalysts

Baird analyst Ben Kallo raised his price target for Tesla to $360 from $332. Its new target is 15% below Tuesday’s closing price of $424.23. Kallo reiterated his neutral rating but said he believed the risk/reward scenario for investors was skewed negatively. He said that while Tesla does accomplish “impressive” things, the current valuation already reflects significant disruption potential. The trailing P/E, at 1.02k, is huge.

Tesla stock would need catalysts to go higher. Its long-term prospects are still great, but shares are too expensive to justify a buy. The recession might impact the demand for electric cars.

The company got only one upgrade from Deutsche Bank following the event, but the dominant narrative seemed to depend on its promises against its ability to execute. Despite the recent plunge, Tesla stock is still up more than 350% for the year. Shares are about 10% lower for September.

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