Why Tesla’s latest battery decision is a game-changer – .

Why Tesla’s latest battery decision is a game-changer – .

The pivot of the VE, Tesla Inc. (NASDAQ : TSLA), delivered again another stellar income report which once again cemented its credentials as one of the few electric vehicle manufacturers willing to challenge ICE hegemony. For years, naysayers and short sellers like Citron Research were willing to bet the house that Elon Musk’s act wouldn’t end well, with the pre-arranged outcome being bankruptcy or a sale. But those speculations were short-lived: The rapid-fire company was able to inject its large-scale manufacturing capabilities into Musk-inspired improvisation and is getting closer to its goal of delivering a million EVs in a year.

Tesla said it built 237,823 cars (+ 64%) and delivered 241,391 (+ 73%), ending the third quarter with $ 1.3 billion in free cash flow and $ 16 billion in cash and cash equivalents . This delivery clip is now within reach of the 250,000 magic deliveries per quarter that will see Tesla become the very first electric vehicle maker to sell one million units of electric vehicles in a single year. Tesla is already classified as the # 1 selling electric vehicle manufacturer in the world after having sold nearly 421,000 units in the first half of 2021, representing a market share of around 15%, with Volkswagen Group and General Motors among the finalists.

Tesla’s report had other bright spots: revenue of $ 13.76 billion was up 56.9% year-on-year, while GAAP net profit of $ 1.6 billion was good for a 389% year-over-year increase.

However, one particular element captured the imagination of Wall Street: Tesla’s profit margins.

Related: Will The Energy Sector Continue To Outperform The Market? The automotive gross margin stands at 30.5% against 28.4% consensus; 27.7% last year and 28.4% last quarter. Tesla was able to achieve the significant improvement in margin even with the average selling price of a vehicle dropping 6% due to a change in the model lineup and also reducing operating costs.

How important does it matter? Morgan Stanley puts it succinctly:

« Tesla posted a surprising adjusted EBITDA margin of 23.3% thanks to an auto variable gross of 37% year-on-year (ex ZEV). Q3 Annualized EBITDA Approaches $ 13 Billion… Going Into Breadth of GM and Ford Territory, Despite Fraction of Revenue. »

Indeed, Tesla now has one of the highest operating margins in the automotive industry, at nearly 15%.

But the electric vehicle company might be able to stretch its already impressive margins by doing another nifty trick: deploying cheap, cobalt-free batteries in its cars.

Piles LFP

In its latest presentation to investors, Tesla revealed that it change battery chemistry for all 3 and Y models in the standard range, from nickel cobalt aluminum (NCA) chemistry to an older alternative technology that uses lithium iron phosphate (LFP) chemistry.

LFP cells not only have a much longer useful life, but are also less expensive than NCA or nickel-manganese-cobalt (NMC) cells. The biggest tradeoff is that LFP batteries have a lower energy density. However, LFP batteries are still able to compensate for this shortcoming by significantly reducing thermal runaway in a crash, meaning that an LFP battery requires much less cooling volume and structural protection to keep cells separate.

Many electric buses in China are already using LFP batteries. Last year, Tesla introduced LFP batteries in its standard Model 3 lineup in China and lowered the starting price from 309,900 yuan ($ 48,080) to 249,900 yuan ($ 38,773). CEO Elon Musk revealed that improving the energy density of LFP batteries now allows the cheaper, cobalt-free batteries to be used in its low-end vehicles to free up more lithium-ion chemical cell batteries for others. Tesla models. .

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Until now, intellectual property restrictions have kept LFP cells mostly in China. But Tesla will now be able to deploy them in its US hub market after obtaining approval from the Chinese government to start using LFP batteries in Chinese-made BEVs in 2020. Indeed, Tesla is making the switch to LFP mandatory on all its markets after a positive reception in the USA

Last December, Bloomberg NEF, a clean energy researcher who has, among other things, tracked battery costs, announced that battery costs fell below the $ 100 per kWh threshold for the very first time. The crucial step has been taken for battery packs designed for electric buses in China.

In the electric vehicle industry, the battery cost of $ 100 per kWh is generally considered to be the essential holy grail for wider adoption of electric vehicles by making them competitive at the sticker price, which remains. a significant psychological barrier for many buyers. The powertrain is typically over 70% of the cost of an EV. Tesla’s LFP switch not only means bigger margins, but can accelerate the company in the race to $ 100 per kWh, leading to longer avenues for growth.

By Alex Kimani for Oil Octobers

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