China’s top electric vehicle battery maker CATL (300750.SZ) said on Monday it has signed a battery supply agreement with Tesla. Tesla will buy as many batteries as Tesla chooses between July 2020 and June 2022.
In the Q4 conference call, Tesla CEO Elon Musk said Tesla was working with both CATL and LG Chem, in addition to their longtime partner Panasonic, to secure battery capacity for their production ramp.
Tesla built the Shanghai factory in 10 months. The bullish stock thesis is that there is huge demand in China for Tesla electric vehicles and that Tesla will be able to capitalize on this with massive and rapid expansions of the factory in a matter of a few months.
Tesla has $6 billion in cash and can get very cheap loans from China banks. They already got a large loan and special rates from China banks.
If Tesla is able to expand capacity in China at about $10,000 per unit per year then $8 billion would add 800,000 cars per year in capacity in China.
Tesla will be moving model 3 and Model Y cars. The demand seems to be there. The ability to rapidly expand clearly exists.
Tesla could conceivably get to 2.1 million cars per year in 2021. 1.5 million cars per year in China and 600K in Fremont. The likelihood of this will become more clear in April when sales and deliveries are announced and then at the end of the month earnings call. In 2021, Tesla may also build and complete the Berlin factory but real production would not appear until 2022 from Germany.
Tesla has 70% market share in the US. Tesla reaching that market share in Asia and Europe would be four times more car sales in 2024 than the Ark Invest “High Functioning EV company” scenario. The 2024 Ark Invest “High Functioning EV company” share price estimate is $3400 per share. Four times that is $14600 per share in 2024.
NOTE: I own shares in Tesla.