Tesla To Widen Profit Margin With Cheaper Batteries
The US EV maker currently uses a lithium-iron-phosphate (LFP) cathode in its vehicles made at its Shanghai factory. Cars with the cheaper battery are already being sold in China, Asia-Pacific and Europe.
Tesla now plans to exclusively use the battery tech across its entire standard-range EV range across the globe.
Some 95% of LFP cathode manufacturing is produced in China.
“LFP has both positive and negative trade-offs”, said Sam Abuelsamid, Guidehouse Insights principal analyst. “It’s significantly cheaper and doesn’t require any nickel or cobalt. It’s also more stable, which makes it safer”.
Abuelsamid warned that the battery cells could be less energy-dense, resulting in lower range and greater sensitivity to cold weather.
Nonetheless, the analyst believes Tesla is making the move to increase its profit margin, stating their change is “probably a smart idea because they probably aren’t go to lower prices so it will likely boost their bottom line”.
Snow Bull Capital CEO Taylor Ogan said the switch is great news for Tesla. “LFP batteries are cheaper and safer”, Ogan said. “With this chemistry, you can charge your vehicle’s battery up to 100% and not worry as much about degradation long-term”.
“The other thing is these batteries are really easy to recycle. And sourcing raw materials for these is easier to do, ethically. That’s why iron-based batteries are really the battery of China already, and they’re all you need for standard-range cars”.
Last week, reports revealed Tesla sold a record number of China-made cars in September, causing WallStreetBets to further express its bullishness.
On Wednesday, Tesla reported its 3Q 2021 earnings, beating both the top and bottom lines. Gross margins reached 30.5% in its automotive business and 26.6% overall.
EPS came in at USD 1.86 vs USD 1.64 expected, but revenue of USD 13.76 billion missed the USD 13.9 billion consensus target.
The company reported net income of USD 1.62 billion; the second time it surpassed USD 1 billion. Last year in the same quarter, Tesla’s net income was just USD 331 million.
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