To The Moon

Tesla Makes Batteries. Now It's Securing Raw Materials

$Tesla Motors(TSLA)$ investors are having a busy week and it's only Tuesday. Ahead of the week's main event, an analyst day on Wednesday, investors have to digest news about batteries as well as EV demand in China.

For starters, Tesla signed a $2.9 billion deal for battery materials with L&F, a Korean maker of materials for battery cathodes, according to a Google translation of a Korean-language disclosure by L&F. The news sent L&F stock soaring almost 9%, lifting the company's market value by roughly $500 million to almost $6 billion.

Cathodes, the positively charged side of a battery, include mixtures of lithium, cobalt, nickel, iron, and other metals. The negatively charged side, the anode, is typically made of graphite.

Battery makers such as China's Contemporary Amperex Technology Co. Ltd., which is better known as CATL, are typically the ones buying battery cathode materials. But all auto makers are building battery factories so they can control more of their EV supply chains.

Tesla has been building batteries for years. The company started building its battery "gigafactory" in Nevada in 2014. Today, the plant is making about 37 gigawatt hours of batteries each year, enough to power roughly 500,000 EVs.

In January, Tesla announced plans to add another 100 gigawatt hours of battery capacity in Nevada. The new battery capacity, along with facilities to manufacture the Tesla semitruck, will result in $3.6 billion in new investment for the state, according to Tesla. That might result in more than $300 million in tax breaks from the state, according to Reuters.

Tesla didn't respond to a request for comment about the breaks or cathode-material deal.

In addition to cathode materials, Tesla has signed offtake agreements with lithium miners and has begun working to get permits for its own lithium refining capacity in Texas. The company isn't alone in pursuing more control over the EV supply chain. $General Motors(GM.US)$, for instance, has also signed deals for lithium and cathode materials to feed the battery plants it is building.

Investors appear to like the news. Tesla stock was up 1.8% in premarket trading. Futures on the S&P 500 and Nasdaq Composite both gained about 0.3%.

Producing batteries is great, but someone has to buy the cars that use them. The news on that front was less good.

Insurance registrations for Tesla in China, which are tracked by Wall Street analysts, came in at about 10,700 vehicles this past week, putting total February registrations at 32,000 units. Wall Street was hoping for closer to 40,000 units, but the insurance data doesn't offer a complete picture of Tesla's month.

The company exports vehicles to Europe from China, so investors only get a full picture of what's going on after the quarter ends.

Including the premarket gain, Tesla stock is now up about $14, or 7%, for the week. Shares should continue to move, up and down, going into and following Tesla's analyst event on Wednesday.

"We expect the company will provide key updates on its global expansion [and] capacity plans, overall demand especially in the crucial China region, and supply constraints," wrote Wedbush analyst Dan Ives in a Monday report.

Investors can also expect "a slew of updates on the product roadmap which we believe will include Cybertruck updates and timing, Semi Truck delivery updates, 4680 battery technology and scale update, and the roadmap to what will ultimately be a vehicle in the $25,000 to $30,000 range."

The 4680 battery technology refers to larger batteries that are more cost effective than smaller ones.

Ives rates Tesla shares at Buy and has a $225 price target for the stock, while the shares closed Monday at $207.63.

Overall, 65% of analysts covering Tesla stock rate share Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 58%. The average analyst price target is just under $200 a share.

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