Elon Musk tempers expectations for Tesla 'Battery Day,' stock dips 5pc

Tesla Inc CEO Elon Musk on Tuesday is scheduled to showcase the company's advanced battery technology, with investors expecting he will outline how the company's electric vehicles will surpass the cost and convenience of internal combustion engines.

But stockholders began selling the electric carmaker's shares after Musk late on Monday tempered expectations by saying that the battery improvements to be unveiled at the event would not reach "serious high-volume production" until 2022. Shares dropped 5.6% on Tuesday to $424.26.

As automakers shift from horsepower to kilowatts to comply with stricter environmental regulations, investors are looking for evidence that Tesla can increase its lead in electrification technology over legacy automakers who generate most of their sales and profits from gasoline-powered vehicles.

Musk, who frequently launches new products in attention-grabbing, show-like announcements, has fueled expectations for Battery Day over the past months, in April calling the event "one of the most exciting days in Tesla's history."

Analysts expect Tesla to present a range of updates, including significant improvements to the amount of energy its batteries can store, allowing vehicles to drive further on a single charge. They also await updates on the production cost of battery cells, largely seen as an impediment to wider electric vehicle adoption.

"We suspect there will be a plenty for everyone," Canaccord analyst Jed Dorsheimer said in a Monday note.

Investors, for example, expect Musk to explain how Tesla will capitalize on its 2019 acquisition of US battery company Maxwell Technologies Inc. Some investors expect the automaker to announce that Maxwell's dry battery electrode technology could significantly reduce manufacturing costs, speed up production and improve batteries' energy storage capacity.

Musk has complained in the past that Tesla vehicles are not affordable enough. Tesla's lowest-range Model 3 sedan with a range of 250 miles (400 km) currently starts at $37,990 in the United States. Musk in July said scaling battery cell production at an affordable price was Tesla's biggest limitation to growth.

Tesla's futuristic Cybertruck, expected to be released in 2021, will have a maximum range of 500 miles, among the longest range of any electric vehicle on the market today.

While average electric vehicle prices have decreased in recent years thanks to changes in battery chemistry and composition, they are still more expensive than conventional cars, with the battery estimated to make up a quarter to a third of an electric vehicle's cost.

Some researchers estimate that price parity, or the point at which electric vehicles are equal in value to internal combustion cars, is reached when battery packs cost $100 per kilowatt hour (kWh).

Tesla's battery packs cost $156 per kWh in 2019, according to electric vehicle consulting firm Cairn Energy Research Advisors, which would put the cost of a 90-kWh pack at around $14,000.

Analysts at UBS expect Tesla to announce battery cell costs of $70 to $80 per kWh over the next three years, allowing the company to save roughly $2,300 per vehicle.

Such a price advantage would leave competitors unlikely to catch up to Tesla, the UBS analysts said.

Tesla currently produces batteries in partnership with Japan's Panasonic Corp at its $5 billion Nevada factory, while South Korea's LG Chem and China's CATL supply cells to its Shanghai factory.

Musk on Monday said Tesla intends to increase battery cell purchases from those three suppliers and possibly with other partners as well.

Tesla is also building its own cell manufacturing facility at its new factory in Germany and is setting up a battery research and manufacturing facility at its largest vehicle factory in Fremont, California.

Musk in July also said Tesla was open to license and supply powertrains and batteries to other automakers.