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Tesla GigaFactory Economics: Why its critical to $TSLA

Forbes says that success of the GigaFactory is critical to any future increase in Tesla share price. It says production savings will boost profit margins.

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Success of Tesla Gigafactory will drive increase in Tesla share price says Forbes magazine.

Early construction of the Tesla Gigafactory in Reno, NV from Feb, 2015. [Source: Reno Sparks Tahoe Homes]

The success of Tesla’s GigaFactory is critical to any increase in its share price and here’s why.

At present, the lithium to make lithium ion batteries comes mostly from South America. From there it gets shipped to North America for refining and processing. Then it goes to Japan or South Korea for further refining and processing. Finally, it comes back to North America as part of batteries that will be installed in an electric car. That car will then be sold in America, Europe or China. A first year business administration student can tell you there are huge inefficiencies built into that system.

According to Forbes, the genius of the Tesla plan is to consolidate as many of those steps as possible under the roof of its GigaFactory in Nevada. Forbes calculates that even if consolidation only shaves a few percentage points off the cost of each step in the process, the cumulative effect will be significant savings. It estimates savings of 10% are possible in both supply chain costs and labor costs. Then, if the volume of Tesla automobile sales increases, economies of scale should account for a further 10% reduction, for total savings of 30%.

MUST SEE >>> Massive Tesla Gigafactory in HD captured by drone flyover

Based on the prices quoted by Tesla at the roll out of its PowerWall residential battery system in April, analysts believe its cost of manufacture is already at roughly $250 per kilowatt hour. Shaving 30% off that number would drive the cost below $200 per kilowatt hour, and that’s that point where many observers believe electric cars can be price competitive with cars powered by conventional internal combustion engines.

Tesla says it plans to sell 500,000 electric cars a year by 2020. Forbes predicts the product mix to make that number possible will be 20% Model S sedans, 15% Model X SUVs, 5% Roadsters and 60% Model III vehicles. At that sales volume, it estimates the company will realize a 10%  gain in its gross profit margins, propelling the company stock 40% higher than its present price target.

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Tesla Gigafactory from May, 2015 [Source: Reno Sparks Tahoe Homes]

But there’s one thing the Forbes report doesn’t take into consideration — the impact on profits from selling batteries for purely  non-automotive uses such as grid storage systems coupled with commercial, industrial and residential uses.

Large companies like Walmart and Target have already signed deals to use Tesla storage batteries. Amazon will rely on Tesla batteries at its new western service center. And Advanced Microgrid Solutions has just announced an agreement to buy enough Tesla batteries for up to 500 megawatts of electrical storage, according to Bloomberg Business.

AMS CEO Susan Kennedy told Bloomberg, “What I like about the Tesla batteries is that they’re so versatile. But we’re technology agnostic. We can choose any type of technology. We intend to use Tesla batteries on a huge number of our projects going forward.” Meanwhile, Mercedes Benz announced this week that it is jumping into the battery storage business in a big way with its Deutsche ACCUmotive division.

There are billions in profits to be made in stationary battery storage systems over the next 20 years, as the world of electrical power transitions away from fossil fuels to distributed renewables. It may turn out that Tesla’s battery business could generate more profits than its automobile business. In which case, Forbes’ prediction of a 40% increase in Tesla share price may prove to be entirely too conservative.

Source: Forbes

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Tesla investors will be shocked by Jim Cramer’s latest assessment

Jim Cramer is now speaking positively about Tesla, especially in terms of its Robotaxi performance and its perception as a company.

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Credit: CNBC Television/YouTube

Tesla investors will be shocked by analyst Jim Cramer’s latest assessment of the company.

When it comes to Tesla analysts, many of them are consistent. The bulls usually stay the bulls, and the bears usually stay the bears. The notable analysts on each side are Dan Ives and Adam Jonas for the bulls, and Gordon Johnson for the bears.

Jim Cramer is one analyst who does not necessarily fit this mold. Cramer, who hosts CNBC’s Mad Money, has switched his opinion on Tesla stock (NASDAQ: TSLA) many times.

He has been bullish, like he was when he said the stock was a “sleeping giant” two years ago, and he has been bearish, like he was when he said there was “nothing magnificent” about the company just a few months ago.

Now, he is back to being a bull.

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Cramer’s comments were related to two key points: how NVIDIA CEO Jensen Huang describes Tesla after working closely with the Company through their transactions, and how it is not a car company, as well as the recent launch of the Robotaxi fleet.

Jensen Huang’s Tesla Narrative

Cramer says that the narrative on quarterly and annual deliveries is overblown, and those who continue to worry about Tesla’s performance on that metric are misled.

“It’s not a car company,” he said.

He went on to say that people like Huang speak highly of Tesla, and that should be enough to deter any true skepticism:

“I believe what Musk says cause Musk is working with Jensen and Jensen’s telling me what’s happening on the other side is pretty amazing.”

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Tesla self-driving development gets huge compliment from NVIDIA CEO

Robotaxi Launch

Many media outlets are being extremely negative regarding the early rollout of Tesla’s Robotaxi platform in Austin, Texas.

There have been a handful of small issues, but nothing significant. Cramer says that humans make mistakes in vehicles too, yet, when Tesla’s test phase of the Robotaxi does it, it’s front page news and needs to be magnified.

He said:

“Look, I mean, drivers make mistakes all the time. Why should we hold Tesla to a standard where there can be no mistakes?”

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It’s refreshing to hear Cramer speak logically about the Robotaxi fleet, as Tesla has taken every measure to ensure there are no mishaps. There are safety monitors in the passenger seat, and the area of travel is limited, confined to a small number of people.

Tesla is still improving and hopes to remove teleoperators and safety monitors slowly, as CEO Elon Musk said more freedom could be granted within one or two months.

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Investor's Corner

Tesla gets $475 price target from Benchmark amid initial Robotaxi rollout

Tesla’s limited rollout of its Robotaxi service in Austin is already catching the eye of Wall Street.

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Credit: Tesla

Venture capital firm Benchmark recently reiterated its “Buy” rating and raised its price target on Tesla stock (NASDAQ: TSLA) from $350 to $475 per share, citing the company’s initial Robotaxi service deployment as a sign of future growth potential.

Benchmark analyst Mickey Legg praised the Robotaxi service pilot’s “controlled and safety-first approach,” adding that it could help Tesla earn the trust of regulators and the general public.

Confidence in camera-based autonomy

Legg reiterated Benchmark’s belief in Tesla’s vision-only approach to autonomous driving. “We are a believer in Tesla’s camera-focused approach that is not only cost effective but also scalable,” he noted. 

The analyst contrasted Tesla’s simple setup with the more expensive hardware stacks used by competitors like Waymo, which use various sophisticated sensors that hike up costs, as noted in an Investing.com report. Compared to Tesla’s Model Y Robotaxis, Waymo’s self-driving cars are significantly more expensive.

He also pointed to upcoming Texas regulations set to take effect in September, suggesting they could help create a regulatory framework favorable to autonomous services in other cities.

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“New regulations for autonomous vehicles are set to go into place on Sept. 1 in TX that we believe will further help win trust and pave the way for expansion to additional cities,” the analyst wrote.

https://twitter.com/herbertong/status/1938287117441855616?s=10

Tesla as a robotics powerhouse

Beyond robotaxis, Legg sees Tesla evolving beyond its roots as an electric vehicle maker. He noted that Tesla’s humanoid robot, Optimus, could be a long-term growth driver alongside new vehicle programs and other future initiatives.

“In our view, the company is undergoing an evolution from a trailblazing vehicle OEM to a high-tech automation and robotics company with unmatched domestic manufacturing scale,” he wrote.

Benchmark noted that Tesla stock had rebounded over 50% from its April lows, driven in part by easing tariff concerns and growing momentum around autonomy. With its initial Robotaxi rollout now underway, the firm has returned to its previous $475 per share target and reaffirmed TSLA as a Benchmark Top Pick for 2025.

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Tesla blacklisted by Swedish pension fund AP7 as it sells entire stake

A Swedish pension fund is offloading its Tesla holdings for good.

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tesla
(Credit: Tesla)

Tesla shares have been blacklisted by the Swedish pension fund AP7, who said earlier today that it has “verified violations of labor rights in the United States” by the automaker.

The fund ended up selling its entire stake, which was worth around $1.36 billion when it liquidated its holdings in late May. Reuters first reported on AP7’s move.

Other pension and retirement funds have relinquished some of their Tesla holdings due to CEO Elon Musk’s involvement in politics, among other reasons, and although the company’s stock has been a great contributor to growth for many funds over the past decade, these managers are not willing to see past the CEO’s right to free speech.

However, AP7 says the move is related not to Musk’s involvement in government nor his political stances. Instead, the fund said it verified several labor rights violations in the U.S.:

“AP7 has decided to blacklist Tesla due to verified violations of labor rights in the United States. Despite several years of dialogue with Tesla, including shareholder proposals in collaboration with other investors, the company has not taken sufficient measures to address the issues.”

Tesla made up about 1 percent of the AP7 Equity Fund, according to a spokesperson. This equated to roughly 13 billion crowns, but the fund’s total assets were about 1,181 billion crowns at the end of May when the Tesla stake was sold off.

Tesla has had its share of labor lawsuits over the past few years, just as any large company deals with at some point or another. There have been claims of restrictions against labor union supporters, including one that Tesla was favored by judges, as they did not want pro-union clothing in the factory. Tesla argued that loose-fitting clothing presented a safety hazard, and the courts agreed.

tesla employee

(Photo: Tesla)

There have also been claims of racism at the Fremont Factory by a former elevator contractor named Owen Diaz. He was awarded a substantial sum of $137m. However, U.S. District Judge William Orrick ruled the $137 million award was excessive, reducing it to $15 million. Diaz rejected this sum.

Another jury awarded Diaz $3.2 million. Diaz’s legal team said this payout was inadequate. He and Tesla ultimately settled for an undisclosed amount.

AP7 did not list any of the current labor violations that it cited as its reason for

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