Tesla’s Battery Business Is The Secret Engine Of Its Insane Stock Price

Can Tesla really become a battery supplier to other EV makers?

The battery base of a Tesla Model S. Oleg Alexandrov / CC BY-SA/ Wikimedia Common

On Thursday, Tesla (TSLA) shares surged past the $2,000 mark for the first time, trading at 10 times what they were this time last year. At a whopping $387 billion, Tesla is now the world’s largest automobile manufacturer, worth twice more than its runner-up, Toyota. It closed Friday even higher, at $2049 a share.

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Despite being its signature product, cars are not why Tesla’s stock price is so high, Wall Street analysts say. The company’s stock split announcement, the likelihood of being included in the S&P 500 Index and pure investor excitement have certainly helped buoy the share price, but ultimately, Tesla’s massive market cap is backed by expectations attached to its other burgeoning business: battery.

Tesla’s lithium-ion battery cells are developed and manufactured through a joint venture with Japanese tech giant Panasonic. The two companies have collaborated closely on battery technology at Tesla’s Nevada Gigafactory since 2014. In June, Tesla signed a three-year deal with Panasonic that includes production capacity commitments by Panasonic and purchase volume commitments by Tesla.

Meanwhile, Tesla is working on two new battery production facilities—one in Fremont, Calif. near its car manufacturing facility and the other in Germany.

More excitingly, Elon Musk has hinted that Tesla has been working on a “million-mile battery” that could last a car up to one million miles throughout the battery’s life. (Current batteries last 300,000 to 500,000 miles.)

“In theory, this battery will support an electric vehicle for 1 million miles and be a major step forward when competing vs. traditional gasoline-powered automotive competitors,” Wedbush’s star analyst Dan Ives wrote in a note to investors last Monday.

The “million-mile” battery is expected to debut at Tesla’s Battery Day event on September 22. And Musk has been open about the possibility of selling Tesla battery packs to other carmakers—which, if true, means a huge untapped profit stream.

“The notion of Tesla supplying not only drive trains and software but superior battery packs to the auto industry is increasingly gaining validation,” Morgan Stanley analysts wrote in a report a few weeks ago.

However, not everyone is as bullish on the prospect of Tesla being a battery supplier. “There is a possibility that Tesla will offer its own batteries to automakers because the more batteries it makes, the cheaper they become. However, automakers won’t buy batteries from Tesla no matter how good they may be because Tesla is basically their competitor in the auto market,” Hwang Sung-ho, a mechanical engineering professor at South Korea’s Sungkyunkwan University, told The Korean Herald last Thursday. The interview was first reported in the U.S. by Teslarati.

“If an automaker decides to develop a new EV and load it with Tesla’s batteries, then the automaker has to share and exchange so much detailed technological information with Tesla for several years for the optimization of batteries,” Hwang explained. “European automakers, who can make cars better than Tesla, won’t risk exposing their know-how.”

“Only Chinese automakers or those who don’t have a technological lead against Tesla will consider supplying batteries from the company,” he added.

Tesla’s Battery Business Is The Secret Engine Of Its Insane Stock Price