Why Tesla Has A Huge Advantage In The Battery Race

Tesla Inc TSLA recently broke the 400-mile battery charge threshold. Its closest competitor is now 100 miles behind.

“We believe Tesla has a competitive advantage in batteries that is under-appreciated by investors. In the future, we expect that advantage to widen,” Loup Ventures managing partner Gene Munster wrote in a note. “Bottom line: Tesla’s lead in batteries is sustainable and other auto OEMs will struggle to gain measurable ground on the company’s 80% US EV market share.”

Why Does Tesla Lead? Tesla’s edge over auto peers comes from its (expensive) interest in vertical integration.

“The most significant advantage is that product design cycle times decrease, which quickens the pace of innovation, which is Tesla’s central competitive moat,” Munster wrote. “Additionally, the end product typically yields better performance and reliability compared to products built with horizontal integration.”

So far, the strategy has resulted in superior vehicle range. As Loup sees it, Tesla could maintain its superiority through in-house cell design and production. The company recently acquired Maxwell Technologies to design its own battery with proprietary chemistry.

“Separately, based on the company's 2019 acquisition of Hibar Systems, we expect Tesla will begin manufacturing its own batteries in the next three to five years,” Munster wrote, noting that vehicle demand will require collaboration with extant suppliers.

Loup Ventures expects Tesla to announce an Austin Gigafactory focused on battery cell production.

Price Action: At the time of publication, Tesla's stock was trading around $1,005 per share.

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