About 22 months ago, Tesla Inc. (NASDAQ:TSLA) CEO Elon Musk fired an ominous warning that the shorts were about to experience ‘the short burn of the century.’ The heads-up came at a time of intense short interest in the company, with the CEO even threatening to take Tesla private. As usual, the bears quickly dismissed it as idle bluster and just another round of Musk’s marijuana-infused trolling.
Fast forward to the present and TSLA shares have nearly tripled since the cautionary note and rallied 115% in only the first two months of the year.
The foreboding [for the bears] came after Tesla posted a surprise second quarter profit that pushed the shares to an eight-month high. The second wave came after Beijing gave Tesla the go-ahead to build a $5bn gigafactory in Shanghai, the first facility outside the U.S.
The third act could come when Tesla converts its hordes of customers, investors and admirers into buyers of products from its sidekick business, SolarCity. That’s according to Piper Sandler who recently assigned a Wall Street high price target of $928 (from $729) for TSLA saying the company has managed to turn its customers into ‘unwitting climate warriors’ that could become big buyers of its clean energy products.
The latest upgrade has propelled the stock into record territory. Can’t say the bears were not warned.
Source: CNN Money
The Clean Energy Revolutionary
For a company that was once given an outside chance against deep-pocketed ICE heavyweights, Tesla is suddenly being hailed as a clean energy revolutionary and Wall Street cannot seem to get enough of the EV maker.
The latest bullish thesis coming from Wall Street based on renewable energy does not seem too far-fetched either.
Piper Sandler’s Alexander Potter and Winnie Dong say that Tesla’s next challenge will be to convince its EV customers that charging their vehicles using coal-based electricity isn’t very green and urge them to generate and store their own solar power. The analysts say that their experiment to install a solar system to charge a Model X has already yielded "illuminating" results and “shows significant promise” for Tesla's future in the energy-generation industry.
Tesla’s acquisition of SolarCity for close to $5bn in 2016 left many observers scratching their heads given that it came at a time when Tesla needed large amounts of capital to expand production and solar companies were out of favor. But that purchase could turn into one of the company’s best decisions in hindsight.
Currently, it’s easy to overlook Tesla’s solar business considering that the solar-panel and battery segment brought in just six percent of the company’s revenue in 2019. But with meteoric rise in ESG investing over the past couple of years, many companies, including traditional fossil fuel companies, have been investing in clean energy projects including solar and wind energy at an unprecedented rate.
At the center of our green energy drive are solar and wind power, both of which are expected to contribute nearly half of the global power mix by 2050 as per Bloomberg New Energy Finance. Global supplies of renewable power are expected to grow 50% over the next five years led by a resurgence in solar energy.
Here in the United States, utilities are trying to cut down on emissions by implementing utility-scale solar projects coupled with battery storage units (one megawatt (MW) or greater power capacity).
In March 2019, NextEra Energy (NYSE:NEE) announced plans to build a 409-MW energy storage project in Florida that will be powered by utility-scale solar.
Xcel Energy (NASDAQ:XEL) plans to replace its Comanche coal units with a $2.5-billion investment in renewables and battery storage, including 707 MW of solar PV, 1,131 megawatts (MW) of wind and 275 MW of battery storage in the State of Colorado.
In October, Duke Energy (NYSE:DUK) announced plans to build an energy storage project at the Anderson Civic Center, Carolina, including investments to the tune of $500 million in battery storage projects for electricity generation capacity of 300 MW.
It’s this ongoing clean energy revolution that has infused renewed enthusiasm into Tesla’s management which sees the energy generation and storage business competing with the core automotive business someday.
Tesla’s insistence on having a complete clean energy ecosystem and trying to make almost everything in-house has been criticized in the past by veteran automakers like Jaguar and Mercedes-Benz. But this kind of extreme vertical integration is beginning to yield dividends with the leading EV company with its EV consistently coming at or near the top in quality tests. Teardown specialist Sandy Munro has hailed Tesla’s electronics as superior to off-the-shelf components and compared them to the electronics of a fighter jet.
A lot of Tesla’s resources are currently dedicated to battery improvements. Tesla’s batteries stand out among its rivals in the EV marketplace primarily due to their superior efficiency and range. To this end, the company has made strategic acquisitions including Maxwell Technologies and Hibar Systems and partnered with CATL to produce batteries for its China gigafactory.
And this in-house model and dedication to quality is paying off in spades. Companies that were once viewed as Tesla rivals are simply unable to keep up due to supply shortages of critical components. For instance, the Mercedes-Benz EQC--once dubbed a Tesla Killer--has seen its 2020 production cut in half to 30,000 units because Daimler is unable to secure enough batteries. Meanwhile, another premium EV model--the Jaguar I-PACE--has had to halt production for weeks for the same reason.
Tesla already has a big head-start on its competitors on many critical aspects of production as the success of its gigafactories and extreme vertical integration model have demonstrated. The company has been winning the trust of even staunch critics by proving that it can consistently deliver.
Don’t be too surprised if it becomes a major supplier of some of these components—and give Elon Musk another opportunity to gloat.
By Anes Alic for Oilprice.com
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