Tesla (NASDAQ: TSLA) is seeking to buy a stake in LG Chem's (OTC: LGCLF) battery business, according to a new report, a first for the upstart electric automaker. The Korea Times reports that Tesla is "exploring" the possibility of taking a stake of up to 10% in LG Energy Solutions, the tentative name of the company that will be created by the upcoming spinoff of LG Chem's battery division. LG Chem expects to complete the spinoff in December.
(Bloomberg Opinion) -- In the world of cars, investors seem to love news of partnerships, synergies and cost-savings as expensive tech upends long-held rules of the road. They may need a reality check.Auto companies across the globe are looking for their next green partner, even if they have their own grand plans for electric vehicles. But cautionary tales are emerging of why the best way into this brave new world – compelled by a regulatory push and sky-high Tesla Inc.-like valuations – may be to seize the wheel on their own.A quick check of how some hyped-up partnerships have fared couldn’t make things clearer.General Motors Co., which has made an aggressive push into electric vehicles, decided it was time to take an 11% equity stake worth about $2 billion in upstart Nikola Corp. Going by the risks in Nikola’s prospectus, this was a tie-up too far. Per the release, GM is giving “the in-kind services and access to General Motors’ global safety-tested and validated parts and components” — basically, most of the things Nikola needs to make trucks.Investors seemed to love the idea. Think: Traditional car company shows it has accessories for the future – electric and hydrogen. GM’s share price rose as much as 8% on the day. Nikola’s surged almost 40%. The Phoenix-based company would save $4 billion on battery and powertrain costs, the core of its business. GM would receive that much in benefits, between the equity value, electric vehicle credits, contract manufacturing, and supply of batteries and fuel cells.It doesn’t look like there’s that much value in it now, with Nikola under investigation and its executive chairman resigning. The stock has dropped almost 80% from its June peak, when it went public via a special purpose acquisition company. In fact, GM – like other car companies – is the one that likely needs the cost savings. Investors should wonder why. Sure, the Detroit giant was keeping promises. GM has said it has allocated $20 billion to electric cars and autonomous vehicles from this year to 2025. Chairman and Chief Executive Officer Mary Barra has laid out green ambitions in clear terms: “We want to put everyone in an EV, and we believe we have what it takes to do it.” It isn’t clear what additional value Nikola would have brought. Besides, of course, the innovation hype. Barra has said GM conducted “appropriate diligence” before entering the deal. Carmakers have been setting unrealistic targets for a while. In 2017, Volkswagen AG put out a plan to make higher-density batteries in three years, according to HSBC Holdings Plc analysts. Part of the program was to bring the cost down to $120 per kilowatt hour. Today, the price remains well above $140 per kilowatt hour, and the density is still lower.Even if banding together theoretically lowers costs, what happens to competitive advantage? Bottom lines? Cheaper batteries are great, but carmakers count on high margins from expensive cars. The facts are that the pressure to make better, safer batteries is rising, and they’re in short supply.Consider the volatile relationship between Tesla and Panasonic Corp. The latter (and its stock price) has had a rocky ride with Elon Musk’s whims. For all the hope the partnership has generated, the Japanese consumer products icon hasn’t made much money from it. After a few ups and downs, the companies penned a new three-year agreement in June in which Tesla buys a certain number of batteries and makes future investments. But, here’s the thing: Tesla is looking elsewhere, too.On Tuesday, Musk tweeted that he would also purchase batteries from several best-in-class manufacturers, like South Korea’s LG Chem Ltd. and China’s Contemporary Amperex Technology Co., the world’s largest producer. Tesla has been looking for ways to jump-start its own battery manufacturing, reflected in the acquisition of Maxwell Technologies Inc. The biggest takeaway from Tesla’s much-watched battery day was Musk’s promise of a (much cheaper) $25,000 electric car and what that would do to reduce the price of its most important component.A number of other ventures exist in various forms: Volkswagen with NorthVolt AB, and with Guoxuan High-Tech Co.; Geely Automobile Holdings Ltd. and LG Chem; Daimler AG and Farasis Energy Gan Zhou Co., LG Chem and GM. The list goes on. It’s unclear whether any will produce what the market needs anytime soon: an affordable and safe electric car with efficient batteries (ignoring all the other costs of ownership, such as charging infrastructure and resale price).What additional value, then, is there from partnerships? For whatever thoughts car companies may have of going it alone, battery makers are increasingly taking pole position. Some are beginning to break even. The top six account for more than 80% of the market and are pushing for pricing power. Whoever produces cars needs batteries. It’s still simpler for automakers to outsource them than go it alone. If partnerships are done right – with capital, manufacturing prowess and real, tangible results – they can succeed. Toyota Motor Corp. has been working with Panasonic for years. It recently set up a joint-venture company that could work well enough to seem boring. For now, investors shouldn’t be wowed by glitzy tie-ups and promises. Keeping an eye on where the real returns are — like actual cars on the road and batteries that take us further, and the companies making them — may serve better. (An earlier version misidentified Nikola Executive Chairman Trevor Milton as CEO and incorrectly stated that GM had sunk $2 billion into an 11% equity stake in the company. )This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal. For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Tesla Inc.’s highly anticipated “Battery Day” fell short of expectations that helped fuel its $320 billion surge in market value this year, with Elon Musk outlining grandiose goals that will take time to pull off.The chief executive officer laid out a plan Tuesday to build a $25,000 car and cut battery costs in half over the next three years. Analysts said while the technology and manufacturing innovations outlined were impressive, Tesla’s valuation already reflected its ability to disrupt and investors may be let down by the lack of surprises at the much-hyped battery-showcase event.This seemed to be the case on Wednesday, as the company’s shares fell as much as 11% to $375.88, closing at $380.36 in New York. They’re up about 360% for the year so far.“With the Battery Day in the rearview, we think there is a lack of upcoming catalysts and are cautious about demand given the recessionary environment,” Robert W. Baird’s Ben Kallo wrote in a Wednesday report naming Tesla a bearish “fresh pick.”That was echoed by Patrick Hummel, an analyst at UBS with a “neutral” rating on the stock, who said in a research note Tesla’s leadership in battery technology and costs is fully valued into the stock. “Given the high expectations into the event, we think the market will initially respond negatively to the relatively long timelines of the innovations and the lack of granularity,” he wrote.Musk, 49, said Tesla wants eventually to produce 20 million cars a year. He described a series of innovations that include using dry-electrode technology and making the battery a structural element of the car. Those incremental and longer-term advances belied expectations for a blockbuster leap forward, which Musk himself played up in the weeks leading up to the event.“The challenge with the stock is that everything they are talking about is three years away,” said Gene Munster, managing director of Loup Ventures. “I think traditional auto is in an even tighter spot, but Tesla investors want this tomorrow.”Vertical-integration improvements -- from making its own battery cells on a pilot line at its factory in Fremont, California, to owning rights to a lithium clay deposit in Nevada -- are designed to allow Tesla to cut costs and offer a cheap car as soon as 2023.“This has always been our dream from the very beginning,” Musk said at the event focused on Tesla’s battery technology. “In about three years from now, we are confident we can make a compelling $25,000 electric vehicle that is also fully autonomous.”Halving Battery CostsMusk is teasing prospects for a cheaper mystery model without ever having really delivered on the $35,000 price point he had long promised for the Model 3. Three years after Tesla started taking orders for the car in early 2016, the CEO announced plans to close most of Tesla’s stores as a cost-saving measure, allowing him to offer the car at that cost. He backtracked 10 days later, and the cheapest Model 3 available now is $37,990.Making a truly mass-market electric car and boosting Tesla’s current annual production to 20 million cars will require vastly more batteries than are currently being produced from a handful of suppliers around the world. So Musk plans to expand global capacity by manufacturing battery cells in-house to supplement what it can buy.“Today’s batteries can’t scale fast enough,” said Musk, who is driven in part by the need to find sustainable energy sources. “There’s a clear path to success but a ton of work to do.” Musk said the gasoline-powered internal-combustion engine will one day be obsolete.Musk described an “incredible series of innovations with varying levels of difficulty,” said Venkat Viswanathan, a battery expert at Carnegie Mellon University. While battery-manufacturing advances are feasible and deliverable in the three-year time frame, Viswanathan thinks that chemistry developments will take a longer.If the planned innovations pay off, vehicle range could increase 54%, cost could decrease 56% and investment in gigafactories could decline 69%, said Andrew Baglino, Tesla’s senior vice president for powertrain and energy engineering.BloombergNEF estimates Tesla’s pack prices were $128/kWh in 2019. A 56% cost reduction would bring prices down to $56/kWh. In addition to the pilot line for battery-cell production in Fremont, and Musk said the company also will make cells at the factory that is under construction in Berlin.Battery Cell ‘Leap’Most global automakers have shied away from making their own battery cells, citing the high investment costs and their lack of expertise in an industry dominated mostly by Asian electronics manufactures such as Panasonic Corp. and LG Chem Ltd.Musk said in a tweet Monday that Tesla will need to start producing its own battery cells to support its various products, even as it ramps up purchases from outside suppliers. He wrote that the company expects significant shortages of cells in 2022 and beyond unless it ramps up output of its own.“I’m really surprised that they’re taking that leap themselves,” said Tony Posawatz, a consultant who led development of General Motors Co.’s plug-in hybrid Chevrolet Volt and now sits on the board of Lucid Motors Inc., a Tesla rival. “I think this is going to be a bit harder than what they think, and I don’t think we’ll see a lot of volume out of that for quite some time.”Tesla’s most important and long-standing partner on batteries is Osaka-based Panasonic, but it also has smaller-scale agreements with Contemporary Amperex Technology Co., or CATL, in China’s Fujian province and South Korea’s LG Chem.Read more: LG Chem, Panasonic Slide as Tesla Looks to Lower Battery CostsThe highly technical Battery Day presentation included several nuggets of news that were overshadowed by the talk of cathodes and electrolytes. One example: The “Plaid” version of the Model S sedan -- with a range of 520 miles -- is now available to order, though the vehicle isn’t expected to go on sales until late 2021.Tuesday’s three-hour event began with the annual shareholder meeting, held outside to allow for social distancing. Shareholders sat in Tesla cars in a parking lot, beeping loudly instead of cheering as Musk spoke.Investors voted to re-elect Musk and chairman Robyn Denholm to the board and voted against resolutions that would have required more transparency about human rights in the supply chain and the use of arbitration with employees. One shareholder resolution, which requires Tesla to adopt a simple majority vote, did pass.Musk told shareholders he expects to see deliveries grow on the order of 30% to 40% this year, reaffirming Tesla’s forecast at a time when automakers are struggling to recover from the coronavirus pandemic. “While the rest of the industry has gone down, Tesla has gone up,” he said.Tesla has said it anticipates delivering 500,000 vehicles in 2020, up about 36% from 2019. In July, the electric-car maker said achieving that goal would be “more difficult” due to a pandemic-related production shutdown early in the year. Global sales are projected to drop about 17% this year to 75 million from 90 million last year, according to research firm LMC Automotive.(Updates with closing stock price in third paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.