Tesla: Secret Bullish Guidance In Plain Sight?

Jul.16.14 | About: Tesla Motors (TSLA)


Understanding the evolution of Tesla's Lithium Ion technology offers insight into just how massive the company can one day be.

A YouTube video of JB Straubel's presentation at the 2014 Energy Storage Symposium tips us off that Tesla is far ahead of the world in lithium ion battery technology.

With applications that will run far outside the gamut of simply 500,000 vehicles/year by 2017, Tesla bulls and bears alike need to "think bigger", in JB's words.

When it comes to Tesla, you need to "think bigger".

I lucked out a couple weeks ago when a good friend of mine gave me a ring and started chatting me up about Tesla (NASDAQ:TSLA). He tipped me off on a YouTube video that he said that, being a bull on Tesla, I should watch. You can check out this video, from the 2014 Energy Storage Symposium where JB Straubel, Tesla's Chief Technical Officer - delivers what I believe to be an absolutely telling keynote presentation. Why is he the keynote speaker on energy storage? Watch the video and you'll see.

Don't get me wrong - this article is about what I believe to be extremely bullish guidance.

Is it guidance on the amount of vehicles delivered for Q2? No. Think bigger.

Is it guidance on Tesla's delivery metrics for Norway? No. Think bigger.

This is, what I believe to be, guidance about the long-term potential and future of Tesla Motors - and why what they're developing in the world of lithium ion technology could be absolutely paradigm shifting - in the automotive industry and outside of it.

In JB's presentation, he first talks about the history behind developing the lithium ion battery - and how Tesla looked at performance vehicles and decided to challenge combustion engines "on their home turf". He's right - electric vehicles were brand new turf during the early 2000's and were easily written off by combustion engine buffs everywhere. They still are - all you have to do is throw the dragnet out onto the internet for a couple of minutes to prove that. Aside from that, fear was rampant about taking a 50 kWh battery and stuffing it into the back of a sports car, Mr. Straubel notes. Since they first looked at that, Tesla has vastly increased the battery's energy density.

But it's the rate of growth in performance and economy that's really mind blowing.

Battery packs double in energy performance about every 10 years, Mr. Straubel says. He says you can see that in the Model S, which showed 40% improvements on the Roadster. The battery pack for the Model S is smaller than the Roadster and the Model S came out about 5 years after the Roadster. Thinking on that for a second, you can start to extrapolate two things:

1. Just how far in front of the electric car world Tesla is

2. Just how evolved the Generation III vehicles from Tesla are going to be.

While we sit and continue to have our minds blown by what the Model S is doing, we fail to realize that the Model S is essentially - from an internal standpoint at Tesla - old technology. Once the Model S went into production, or possibly before it, Tesla was already working on the technology that's going to be included in the Generation III vehicles. Tesla is not only likely 5 years ahead of the rest of the industry, they're likely 5 years ahead of their very own patents. In my article "Tesla's Latest Brilliant Move", I discuss this:

There is no doubt in my mind that [releasing their patents] is the absolutely right decision for Musk to make. What Musk understands is that this isn't just Tesla vs. the rest of the car industry. This is about all electric vehicles gaining some prominence in our daily lives. The only way to ensure the safety of the electric vehicle market (without which there is no Tesla) is to try and make it the mainstream. What better way to help make it mainstream than to help share what you have learned thus far with those that are trying to enter into the same territory?

The interesting thing is with how quickly Tesla's technology is going to change, the patents may not even be as up to date as what Tesla is working on. What it may do, however, is create residual "clone" companies in Tesla's image which will serve two benefits:

  • They continue to help push electric cars, as a market, forward.
  • They remain behind Tesla, following Tesla's lead.

Thinking outside the box is what was got Tesla to where it is today.

The company would have never been able to make it this far with their disruptive technology while abiding by the "normal" rules. This decision is just another step in a line of crucial major decisions that I believe we will look back on and identify as cruxes to the argument of why Tesla was a grand success.

Back to JB's presentation. As the company continues, he notes they want to continue to improve affordability while increasing market size. But, what if the batteries were already being produced for significantly cheaper than we think? Would that change some bears opinions on Tesla's future battery usage prospects? That's a big yes.

"We've been pretty successful in hammering down the cost, and gotten to a place where we're quite confident"

-JB Straubel, Tesla CTO

If the third generation of Tesla vehicles are going to do what the Model S did to the Roadster, the energy storage that's coming in the future for Tesla should be groundbreaking and beyond the most bullish of analyst picks that you can find out there. Again, think bigger.

Again, from Mr. Straubel's own words:

"I can't disclose our exact price and cost figures on batteries, but it is at a cost point that we realized, is imminently competitive on different markets outside of cars."

-JB Straubel, Tesla CTO

Talk about hearing it directly from the horse's mouth. I'm not sure I would pay those words as much credence if I heard them from Mr. Musk himself, let alone his Chief Technical Officer in battery technology, who happens to be a full fledged genius.

So the focus then turns to volume - overall volume capacity to build enough energy storage in the world.

JB helps offer perspective as to exactly how massive the market size for energy storage is. Their target is to build 500k Generation III models per year - and he says they can do that with the factory they already have. From an automotive point of view, it's nothing new - but he comments that from the battery point of view - it's absolutely massive. Tesla could very well be the coming worldwide leader in lithium ion technology, if they're not already.

He shows that ten times their current volume is doable, they just have to address the need for more lithium ion cells. He continues to note that this is very small scale compared to the entire car industry. At 500k vehicles/year, Tesla is still under 1% of the world's vehicle market, Straubel notes.

He claims that this will significantly help the cost point of battery packs. He estimates that battery pack costs per kWh will be reduced by greater than 30% when Tesla gets to its Generation III volume ramp up in 2017. That is, from the already low prices that Mr. Straubel is "confident" in. Speaking about the battery market, Mr. Straubel confidently stated:

"I'm bullish this can scale faster than the car market."

-JB Straubel, Tesla CTO

To create the battery packs, Tesla goes back all the way down to the raw materials that create the cathode/nanode. He comments that they're using sustainable methods to product a sustainable product. Low emissions and good labor practices are focuses of the company and can be easily achieved, Straubel notes.

When you come back to the CA mandate for industry storage, he notes, they're "bullish on it" - stating it will be met and exceeded well before time runs out.

"We should all be thinking bigger," Straubel notes.

There is no doubt that a lot of the bears have missed a lot of this in its entirely. Tesla could be so much more than a vehicle company if they truly wanted to, but first things first. The fact that Mr. Straubel says it's going to be an easy take to product 500,000 vehicles/year should make your ears stand up. The rate at which Tesla's battery technology has evolved, however, should really make you fall out of your chair.

The point of pointing all of this out is to show that Mr. Straubel was dripping with confidence here. He understands the chemistry behind these battery packs in a manner which you and I wouldn't understand if we lived to be 400 years old each. And, knowing what he knows, he makes statements like:

"The economics are going to drive this forward much quicker than anyone thinks."

Hmm, who to trust - analysts claiming it can't be done or the company that has defied odds and executed on absolutely every goal they've set out for in the last 5 years?

Tough one.

I remain extremely bullish on Tesla for the long-term.

Best of luck to all investors.

Disclosure: The author is long TSLA. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.