Analysts acknowledge that the electric vehicle company and all EV makers may face downcast pressure as demand for electric vehicles slows.
Nevertheless, a report from Morgan Stanley’s commodities strategists and a cross-sector team of equity analysts discovered that, as EV demand restricts, current spot LCE (Lithium Carbonate Equivalent) prices of $71k/t will encounter significant downward pressure throughout FY23. Notwithstanding the risk of slowing demand, there has been a substantial increase in battery inventories in China above and beyond regular gaps between supply and demand. The growth could worsen a correction in LCE prices.
They remarked that either EV demand needs to be adjusted down (at least in the upcoming term) because of inflation and demand destruction, or key input prices such as Lithium/LCE need to drop to reduce further and long overdue price cuts in EVs. EV price cuts have to make good on investors’ long-term EV penetration predictions in an increasingly saturated Chinese EV market, a structurally contested European market, and a decelerating US economic environment.
Changes in Tesla
From a Tesla standpoint, the automaker’s price leadership and vertical integration may pad its comparative advantage over its counterparts in a deflationary environment. Tesla has been trying to integrate into the lithium value chain vertically. The company filed for a tax reduction in Texas for a battery-grade lithium hydroxide refining facility to bypass the battery manufacturing tie-ups they’ve been meeting this year.
During the 3Q conference call, when asked if the company would regard vertically integrating into mining, CEO Elon Musk responded they’ll do whatever they have to. Whatever the limiting factor is, they’ll do.
