Tesla’s giant awakens

20/01/2017

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Hamish Chamberlayne, portfolio manager for Henderson’s global sustainable equity strategy, provides an update on Tesla as its Gigafactory begins battery cell production. He explains how Tesla’s ambitions for a low carbon revolution extend beyond electrifying the automotive industry.

On 4 January 2017 Tesla began producing its next generation lithium-ion battery cells at its enormous Gigafactory. Located in the Nevada desert, the factory will have the largest footprint of any building in the world when it is completed in 2020. To mark the commencement of production, Tesla hosted an on-site investor event where it reiterated its 2018 target of producing 35 gigawatt-hours (GWh*) of battery cells and 50GWh of battery packs, enabling it to meet its 2018 production goal of 500,000 all-electric vehicles. At the event, Tesla also highlighted the productivity gains that it and its partner Panasonic have been able to achieve by using advanced engineering techniques and factory automation technology.

Source: Tesla

A zero carbon factory

The factory has been designed as a giant machine and its capacity is now expected to be three times greater than the original plan. Reflecting this, Tesla also announced a 2020 target of 150GWh of battery pack production, enough to support the production of 1.5 million vehicles. This level of battery production will have a material impact on reducing global demand for fossil fuels and therefore carbon emissions. The factory itself will also be zero carbon, thanks to its roof being entirely covered by solar panels, and an onsite battery reprocessing facility will allow battery cells to be recycled.

In addition to producing next generation batteries with higher energy density, the Gigafactory will result in material reductions to the cost of batteries. In many parts of the world, thanks to lower running and maintenance costs, electric cars are already competitive with gasoline cars on a total cost of ownership basis. With a 30% decline in battery costs they will become competitive on a list price basis.

Not just cars: storage solutions and solar tiles

Source: Tesla

It is not just about cars, however, with Tesla’s ambitions going far beyond manufacturing vehicles. The company’s mission is “to accelerate the world’s transition to sustainable energy”. We think many people overlook the fact that Tesla expects 50% of the Gigafactory output to go towards battery packs for stationary storage applications in residential, commercial, and utility end markets. Affordable batteries enable much greater penetration of renewable energy since the problem of the intermittency of wind and solar power is solved.

Source: Tesla

The partnership with Panasonic also extends to the manufacturing of solar cells incorporated into roofing tiles to create a solar product that will go on sale later this year.

We are fast approaching the inflection point where the cost of clean technologies is competitive with fossil technologies on an unsubsidised basis and the transition to a low carbon economy will be driven by market forces. Tesla is at the heart of this transition. It is attacking multiple industries – from fossil fuel production to power generation and transportation – and we believe it will be one of the great global growth stocks of the next decade. We think Tesla’s earnings could approach US$20 per share by 2020**, which by our estimates implies the stock is currently trading on a 2020 price-earnings ratio of roughly 12x***. And this is just the beginning: we expect more Gigafactories to be built and that Tesla will keep on growing.

 

 

*1 GWh = a measure of electrical energy equivalent to the work done by one billion watts operating for one hour.

** These are the manager’s views and calculations at the time of writing and do not qualify as an investment recommendation. References made to individual securities do not constitute or form any part of any offer or solicitation to issue, sell, subscribe or purchase the security. Future performance is not guaranteed. The value of an investment and the income from it may fall as well as rise and you may not get back the amount originally invested.

***Price-to-earnings ratio = a popular ratio used to value a company’s shares. It is calculated by dividing the current share price by its earnings per share. In general, a high P/E ratio indicates that investors expect strong earnings growth in the future.

Please note: all images are sourced from Tesla, with their permission. Copyright laws apply.

These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

The information in this article does not qualify as an investment recommendation.

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This document is intended solely for the use of professionals and is not for general public distribution.

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change.

If you invest through a third party provider you are advised to consult them directly as charges, performance and terms and conditions may differ materially.

Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment.

Any investment application will be made solely on the basis of the information contained in the Prospectus (including all relevant covering documents), which will contain investment restrictions. This document is intended as a summary only and potential investors must read the prospectus, and where relevant, the key investor information document before investing. Copies of the Fund’s prospectus and key investor information document are available in English, French, German, and Italian. Articles of incorporation, annual and semi-annual reports are available in English. All of these documents can be obtained free of cost from Janus Henderson Investors registered office: 201 Bishopsgate, London EC2M 3AE.

Issued in the UK by Janus Henderson Investors. Janus Henderson Investors is the name under which Henderson Global Investors Limited (reg. no. 906355), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services. We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

Copies of the Fund’s prospectus are available in English, French, Spanish German and Dutch. Key investor information documents are available in English, Danish, German, Finnish, French, Italian, Norwegian, Spanish, Swedish and Dutch. Articles of incorporation, annual and semi-annual reports are available in English. All of these documents can be obtained free of cost from the local offices of Janus Henderson Investors: 201 Bishopsgate, London, EC2M 3AE for UK, Swedish and Scandinavian investors; Via Dante 14, 20121 Milan, Italy, for Italian investors and Roemer Visscherstraat 43-45, 1054 EW Amsterdam, the Netherlands. for Dutch investors; and the Fund’s: Austrian Paying Agent Raiffeisen Bank International AG, Am Stadtpark 9, A-1030 Vienna; French Paying Agent BNP Paribas Securities Services, 3, rue d’Antin, F-75002 Paris; German Information Agent Marcard, Stein & Co, Ballindamm 36, 20095 Hamburg; Belgian Financial Service Provider CACEIS Belgium S.A., Avenue du Port 86 C b320, B-1000 Brussels; Spanish Representative Allfunds Bank S.A. Estafeta, 6 Complejo Plaza de la Fuente, La Moraleja, Alcobendas 28109 Madrid; Singapore Representative Henderson Global Investors (Singapore) Limited, 138 Market Street #34-03/04 CapitaGreen, Singapore 048946; or Swiss Representative BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich who are also the Swiss Paying Agent.

Specific risks

  • Investment management techniques that have worked well in normal market conditions could prove ineffective or detrimental at other times.
  • Shares can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
  • This fund is designed to be used only as one component in several in a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested into this fund.
  • The Fund could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Fund.
  • The value of a bond or money market instrument may fall if the financial health of the issuer weakens, or the market believes it may weaken. This risk is greater the lower the credit quality of the bond.
  • Derivatives use exposes the Fund to risks different from, and potentially greater than, the risks associated with investing directly in securities and may therefore result in additional loss, which could be significantly greater than the cost of the derivative.
  • Changes in currency exchange rates may cause the value of your investment and any income from it to rise or fall.
  • When interest rates rise (or fall), the prices of different securities will be affected differently. In particular, bond values generally fall when interest rates rise. This risk is generally greater the longer the maturity of a bond investment.
  • Any security could become hard to value or to sell at a desired time and price, increasing the risk of investment losses.

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