I'm not normally the type to gawk as I pass a car accident; I generally prefer to shame the rubberneckers who are holding up traffic. But the other day, I couldn't avert my eyes -- the wrecked car was a Tesla Model S. When I read about another Tesla accident the next day, I started to wonder if it was all a sign.
Since the beginning of the year there has been a great amount of hype about Tesla Motors (NASDAQ:TSLA) The company's stock price has been on an upswing for the better part of this year, climbing from a low of $32.91 in January, to a 52-week high of $194.50 last month.
But for the first time in months, the stock price has shown signs of faltering amid an unfulfilling third quarter earnings report and other negative publicity. While the company's climb in stock price of more than 400% earlier this year was impressive, it seems things could turn south for the company. Like the inertia of an electric Model S meeting the mass of a cement wall, Tesla's momentum may have met its match. If it wishes to continue its success, it will need to focus on one key element: batteries.
Sustainable battery production
Tesla CEO Elon Musk has expressed interest in building a lithium-ion battery production facility that would dwarf all other electric car battery production in the world. From a practical business standpoint, such an achievement is at least a few years away, especially considering its forthcoming deal with electronics manufacturer Panasonic, which is scheduled to ramp up outsourced battery production next year.
Keep in mind that Tesla is a maker of zero-emission cars, and building a massive lithium-ion battery facility presents an impact on the environment that is questionable at best. Most notably, because more than 80% of the world's electricity still comes from burning fossil fuels, charging large battery packs may just divert carbon emissions to a power plant somewhere.
Then, when the batteries are manufactured on such a large scale, concerns arise about depleting lithium deposits, which are predominantly located in South America, thus increasing transportation costs and carbon emissions to retrieve. Whether Tesla or Panasonic is doing the manufacturing is not going to change the uncertainty of the situation.
Lithium-ion batteries have never been produced on such a large scale as Tesla envisions, which is why the sustainability of doing so is uncertain. It could eventually lead to a shortage of lithium, especially if electric cars become more widely adopted. Finding a more abundant natural resource for its batteries would be ideal. But more realistically, Tesla should hone in on using the resource more efficiently. In other words, if the company can figure out how to get the same millage out of a smaller battery pack, then the sustainability of battery production will be less of an issue.
Tesla should also focus on ways to make its cars and business more eco-friendly, beyond zero emissions. For instance, if the company wishes to take battery production into its own hands, it needs to find a way for drivers to charge them without burning fossil fuels. Where the electricity comes from is largely out of Tesla's hands, but there are many instances of owners powering their Teslas entirely from solar panels. With Musk's involvement in Solar City, perhaps Tesla could give car buyers an incentive to buy solar paneling to power their vehicle.
During Musk's remarks about his vision for a new battery production facility, he also mentioned more eco-friendly practices like making the facility solar powered, and introducing a battery pack recycling program. Again, these features are likely years down the road, and Tesla is going to need as many eco-friendly business practices as it can get; it needs batteries that are sustainable for the environment and readily available to increase production without constraints.
Tesla's stock plunged more than 20% last month and reported a net loss of $38 million, or $0.32 per share, for the third quarter. In actuality, the company's loss was expected. Its subpar production numbers were not. Many estimates expected the number to eclipse 6,500, but instead fell short by at least 1,000.
Tesla cars obviously cannot run without batteries, which again points to the company's need to focus on a sustainable method of battery production that will not deplete lithium deposits — or that will use them more efficiently — and ideally use electricity that does not come from fossil fuels. This will increase and meet future production estimates, as well as further revolutionize the electric car.
Jamison Hill has no position in any stocks mentioned. The Motley Fool recommends Tesla Motors. The Motley Fool owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.