Tesla Expansion Rolls On After Stock's Crash

The recent crash in Tesla’s (TSLA) share price amid signs of slipping demand hasn’t stopped the maker of electric vehicles from plotting aggressive expansions at home and abroad, nor did it deter a top-tier brokerage from naming the stock its top pick for a second year running.

Tesla filings in Texas indicate the company plans to spend more than $770 million over the next year to expand its factory in Austin. The company is also reportedly nearing a preliminary deal to build a new plant in Indonesia.

Key Takeaways

  • Tesla has filed plans to expand its Austin, Texas plant at a cost of more than $770 million over the next year.
  • The maker of electric vehicles is also near a preliminary deal to build a new plant in Indonesia.
  • The stock, a top auto industry pick at Goldman Sachs, has erased its 12% loss in the year’s opening session.
  • Shareholders remain restless after last year’s 65% share price drop, with one demanding Tesla’s board start succession planning.

Tesla remains a technology and cost leader in EVs and a 2023 top pick in the auto industry for Goldman Sachs, even though the brokerage’s analyst cut his price target on the stock for the second time in less than a month last week, to $205 per share. That’s down from a split-adjusted target of $400 a share a year ago, when the same analyst also called Tesla a top pick. The stock fell 65% in 2022.

Tesla shares rose about 4% in Wednesday morning trading, extending a relief bounce that’s brought them back into the black for 2023 after a 12% plunge in the year’s first trading session.

News of Tesla’s expansion plan comes as the company faces growing competition in electric vehicles from traditional automakers, and follows price cuts at the end of the last quarter that failed to help Tesla reach its deliveries forecast or analysts’ lowered estimates.

In Austin, the company plans to add facilities for battery cell testing and manufacturing as well as the production of cathodes and drive units over the next year, according to plans filed with the state. The Austin plant has struggled with supply chain snags since opening in April, with Tesla CEO Elon Musk complaining in June that the factory, along with the one Tesla opened in Germany near Berlin, had become “gigantic money furnaces” and were losing “billions of dollars” as a result of low production volumes.

Meanwhile, the potential deal to build a new plant in Indonesia follows a $5 billion supply agreement Tesla signed in August for Indonesian nickel, amid burgeoning demand for the metal as a raw material for electric vehicle batteries. The Indonesia plant under discussion would produce as many as a million cars annually, the standard Tesla goal for all its plants.

While many analysts predict 2023 will prove a tough year for the EV industry amid slowing economic growth, Tesla’s recent price cuts in China appear to have propped up demand, even as they infuriated customers who bought Teslas just prior to the discounting.

Unrest is also brewing among the company’s unhappy shareholders, with one prominent critic campaigning for a seat on Tesla’s board, while another investor has demanded the board start planning the process of choosing Musk’s successor, when the time comes.

Coincidentally, Tesla’s top China executive Zhu Xiaotong, also known as Tom Zhu, has recently emerged as an unofficial chief of the EV maker’s global operations. Zhu, who spearheaded the construction of Tesla’s Shanghai plant in less than a year, reportedly won over Musk with workaholic habits and unstinting devotion to the company.

While Zhu’s emergence could calm investor apprehensions that Musk is too preoccupied with running Twitter and his several smaller companies to remain an effective Tesla CEO, it could also underscore the company’s growing dependence on China. The Indonesia supply deal was for nickel deposits developed in a partnership with a Chinese company. In his role as CEO of SpaceX, Musk heads a rocket company reliant on U.S. government contracts at a time of growing geopolitical rivalry between the U.S. and China.