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Tesla, Battery day disappointed the markets: stop the stock rally

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Curated by Mobeen Tahir , Associate Director Research of WisdomTree

The price of the stock Tesla has dropped by nearly 18% compared with 22 and 23 September last week. What happened? “ Battery day ” took place on Tuesday 22 September, during which the electric vehicle manufacturer made several announcements. Among the most important revelations:
1. the new Model S Plaid model, an update of the Ludicrous;
2. the aspiration to build a $ 25,000 car ;
3. a new tabless battery, i.e. without bottom plates, which would be built within the company and which should improve production efficiency. It would also use higher amounts of nickel and lower amounts of cobalt.

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Source: Bloomberg, Data updated to 28 September 2020

So why did the stock price go down? Perhaps because the market was expecting the company to announce a new “million mile battery ,  meaning that the company would focus on the battery range rather than cost efficiency. That said, the automaker has had a stellar run so far this year , challenging valuation multiples and positioning itself far ahead of the rest of the US stock market. Tesla’s turbulent rally represents the culmination of market turmoil in the electric vehicle industry, a crescendo of excitement that ends in disappointment when new announcements don’t meet expectations.

Another side effect of this enthusiasm is the impact on connected businesses. For example, Tesla’s plans to vertically integrate its lithium supply, as part of producing a cheaper battery, held back the share price of the company’s lithium supplier, Albemarle , on so-called “Battery day”.

Investor options

Thematic investors excited about the growth of electric vehicles may want to consider the following two factors.
• The value chain : Electric vehicles are just one application of the growing innovation in battery solutions. The fund is represented by an entire value chain that includes raw materials, component manufacturers, emerging technologies such as wireless charging and enablers such as network services. Thematic investors looking to take advantage of the industry’s long-term growth prospects may want to “flow” the value chain. This approach can also provide the necessary diversity and volatility protection of individual stocks.
• Invest in fundamentalsNickel prices didn’t jump when Tesla announced that more industrial metal will likely be needed in its new battery design. Industrial metals do not move in the same way as stocks. They tend to move more in line with fundamentals. If a change in battery technology begins to require greater quantities of nickel, it will not come with a price immediately after the technology is announced. The price will likely move gradually as effective demand begins to rise. This is a favorable profile for thematic investors who want to have a long-term view of fundamentals.

For this reason, events like Battery day are interesting as they give us clues as to the direction the technology is taking. But investors have the ability to look beyond the volatility of individual stocks and benefit from the balance and promise of growing technology.

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