Cannot Stop the Battery

Pounding out aggression

Turns into obsession

Cannot kill the battery

–Metallica, “Battery”

Elon Musk. The name is synonymous with eccentric genius. When it comes to his electric car company, the mighty Tesla, Inc. (TSLA), well, that stock has been an investor juggernaut that’s up some 370% year to date. Yes, you read that number correctly. Yet today, TSLA shares were down (about 7.5% midway through Wednesday’s session). One reason why was a sell-the-news reaction to the company’s “Battery Day” on Tuesday.

Yet that selling aside, the big picture indicates that, when it comes to the electric car and the technology that is destined to exponentially improve in the coming years, well, to borrow a verse from the great Metallica, you “cannot kill the battery.”

Think of Tesla’s Battery Day as a sort of PR event/shareholder meeting. And in inimitable style, Musk and key executives conducted the outdoor event, not just to a crowd of socially distanced people, but to a parking lot of socially distanced Tesla automobiles with their shareholder drivers inside. The drivers even honked their horns in what was presumably mass approval at what they heard.

Musk and his executives discussed the current state of Tesla, and consistent with his tendency to make new model news, Musk announced a yet-to-be-named $25,000 Tesla vehicle that is in the works. That reduced price will be offered thanks to what he said would be cost savings in battery production that will touch all of the company’s products.

Courtesy of Stockcharts.com

And it is about that battery technology that this Battery Day was focused on. Specifically, Musk said that there are three key components to a future world of sustainable energy: sustainable-energy generation, storage and electric vehicles. “So, we intend to play a significant role in all three,” stated Musk. Hey, would we expect Elon Musk to play anything but a significant role in whatever he does?

To get there, Musk and team theorized that the world needs to produce 10 terawatt-hours’ worth of energy per year. To give you an idea of how much energy that is, Musk said that that amount was more than 100 times Tesla’s current terawatt hours’ production level.

“Today’s batteries can’t scale fast enough. They’re just too small,” Musk said. In order to have electric cars continue their growth against their fossil fuel-powered rivals, they’ll need to continue to get cheaper. To achieve that cost savings, Tesla plans to halve the cost of producing every kilowatt-hour with what are known as continuous cylindrical cells.

These continuous cylindrical cells represent a new battery architecture that Musk says will result in five times more energy production and a 16% increase in vehicle battery range that also comes with six times the power output. Musk also said that the production of this new technology was already beginning at a pilot plant.

“It will take about a year to reach the 10-gigawatt-hour capacity,” according to Musk, who added that by 2030 he expects Tesla would be able to produce three terawatt-hours of energy every year.

Musk also mentioned another development that actually had wider implications for the lithium industry, particularly companies such as leading lithium producer Albemarle (ALB). Tesla executives said that the company acquired a 10,000-acre mining site to produce even more of its lithium battery components in-house.

“There really is enough lithium in Nevada alone to electrify the entire U.S. fleet,” said Tesla executive Drew Baglino, senior vice president of power train and energy engineering.

The combination of new technologies that use less lithium, yet deliver more power at a lower cost to Tesla via its entry into the mining space, created a sell-off in ALB as well as big-name lithium stock Sociedad Química y Minera de Chile S.A. (SQM). Yet, despite the double-digit-percentage selling in ALB and SQM today, I think it behooves us to remember Metallica here, because even Tesla “cannot kill the battery” — either the existing battery technology or the companies that produce the lithium which goes into all sorts of batteries, not just Tesla automobiles.

So, while the long-term trend in lithium is for new and better technology to continue making lithium batteries more efficient (and therefore require less lithium), the counterbalancing trend is a world increasingly looking to add electric vehicles of all sorts to the global transportation grid.

This electrification of transportation will mean more aggregate lithium demand and the need to make more and more batteries — and that means long-term opportunity for investors in both Tesla and in lithium manufacturers.