Why Tesla's Battery Day Did Not Impress Investors

Tesla Inc. (NASDAQ: TSLA) CEO Elon Musk tried to dial down expectations for Tuesday’s Battery Day presentation. It sort of worked: the stock dropped 5.6% following a Musk tweet on Monday. Shares dropped even more, about 7% at one point, following the Battery Day presentation.

Partly that’s the result of high expectations, with many analysts and investors anticipating that Tesla would announce a million-mile battery, along with a plan for in-house battery production. Both expectations were sort of met. It’s just going to take longer than investors are willing to wait.

The big takeaway from the event has to be Musk’s reiteration of a $25,000 fully self-driving all-electric vehicle (EV) by 2022 or 2023. That price point has been one of the company’s goals practically since it sold its first car.

Tesla plans to reach that goal by cutting battery costs in half, primarily through higher efficiency and better manufacturing processes. As outlined by the company at Tuesday’s event, Tesla expects to cut the cost of a battery by 56% by 2022, lowering the cost per kilowatt-hour (kWh) from just over $100 currently to around $50 per kWh.

A 60-kWh battery currently costs about $9,000, and Tesla’s Model 3 Sedan costs around $35,000. Halving the battery cost gets the company about halfway to its goal of a $25,000 car. The company is counting on manufacturing improvements to get it all the way to its price point.

The company also plans to eliminate the use of cobalt in its battery cathodes. Cobalt is expensive and mining it, primarily in Congo, leads to conditions that violate human rights. Tesla plans to build its own cathode plant and incorporate the battery into the car’s frame. Musk said, “About three years from now, we’re confident we can make a very compelling $25,000 electric vehicle that’s also fully autonomous.”

Shares traded down about 5% in Wednesday’s premarket session to $403.49, after closing Tuesday at $424.23. The stock’s post-split 52-week range is $43.67 to $502.49, and the consensus price target on the stock is $311.70.

Part of the weight on the share price is investors’ concern about share price dilution. The company’s plans are neither free nor cheap. Tesla already has announced a proposed secondary offering valued at $5 billion, and that may be only the first of its efforts to raise more capital.