Piper Sandler #TeslaReport

Piper Sandler analysts recently held two Tesla-related events to delve into Tesla’s energy storage and autonomous driving strategies.

In a report to customers last Sunday, we highlighted the 24 key points derived from these events.

1) Visit Megapack Facility

• While Chinese companies are intensifying their competition in the stagnant cell market, global demand remains strong.
• By 2030, the market is expected to need about 2 terawatt-hours of batteries, 20 times its 2023 level.
• As battery technology matures, hardware can be commercialized, and Tesla (NASDAQ:TSLA) will not be able to compete “on price competitiveness alone,” the investment bank said.
• For Tesla to win the contract, it takes advantage of the entire ecosystem, including software and inverters, rather than focusing on offering the lowest price.
• Chinese competitors are largely absent from the U.S. market as these long-term assets require ongoing services.
• Geopolitical factors and factory locations pose challenges to Chinese suppliers in the U.S. market.
• Megapacks can cost more than 80,000 pounds, which highlights the importance of local production because of their high transportation costs.
• The new Shanghai facility, scheduled to be operational in 2025, will help Tesla compete more effectively in the Asian market.
• Tesla Energy operates on a project basis, making it difficult to forecast long-term due to fluctuations in quarterly earnings.
• Tesla is currently importing lithium iron phosphate (LFP) batteries and did not comment on the possibility of its own production using CATL machines.
• Tesla’s strategy focuses on localization or internalization of production to prepare for a range of potential market scenarios.
• Tesla Energy’s long-term gross margin target is around 20%, as is the rest of the sector.

2) FSD Community Tracker Webinar

• The FSD Community Tracker is meant to evaluate how quickly Tesla’s FSD software improves in real-world environments.
• Over the past six months, 107 users submitted their data using six different input methods.
• Data submissions tend to increase for one to two months after the release of the new FSD software version.
• Tracker participants are generally sincere, calm, objective, and use FSD regularly.
• However, biased outliers can be identified and removed from the data.
• The latest FSD version (v12.5.x) is an improvement over previous versions, with 220 to 251 miles to drive between critical interventions.
• Using these absolute numbers, it is difficult to directly compare Tesla’s FSD with rivals such as Waymo.
• It is also difficult to accurately determine the number of intervention-free miles required for a robotaxi.
• Observing improvement trends rather than finding exact numbers is more useful for understanding the progress of FSD.
• Although v12.5.x has improved, it has seen a slight drop in performance since its initial release, possibly because Tesla is preparing for third-generation hardware.
• The intervention trend shows that FSD v12.5.x has “definitely improved” compared to previous versions.
• However, analysts highlight that the performance of that version has still deteriorated since its initial release.
• This may be because Tesla is preparing v12.5.x for use in third-generation hardware.

Piper analysts reaffirmed their “Overweight” rating on TSLA, offered a $300 price target, and recommended holding TSLA shares ahead of the robo-taxi event in October.