The holiday season does a lot of heavy lifting when it comes to sales.
Companies have annual targets they need to meet to make sure their full-year sales reports look good.
The whole fourth quarter is a series of sales, from Black Friday to Boxing Day.
And while most retailers lower their price tags to attract customers, some do not have the same approach.
Think Apple, Tiffany & Co., Peloton, and other premium brands.
These companies think that they don’t need to persuade their customers to buy. They have the confidence that their products are so in-demand they will sell well without aggressive marketing techniques.
Up until recently, Tesla was one of these companies. But it changed last week…
Right before the year end, the electric vehicle (EV) maker offered a $7,500 discount for its Model 3 and Model Y cars. Tesla also provided its potential buyers with 10,000 miles of free use of its Superchargers. (Usually, customers pay a fee for its fast-charging service.)
It’s a nice gesture for consumers who want a new EV from a famous brand at a lower price. But it’s not a great signal about the state of Elon Musk’s business. For years, he enforced a no-discount policy, and it was a cornerstone of the company’s sales approach.
This is why the discount news shocked the market, and the company’s share price tumbled 3.8% in a day. From its peak in November 2021, Tesla’s share price has lost over 70% of its value.
This discount is a sign that Tesla could be struggling to sell its premium-priced vehicles. And while the company can’t fix the global economy heading into recession, or its customers’ purchasing power hit by high inflation, it can control its costs.
Discounts hurt premium brands. But smart cost control keeps them profitable. And there is a way EV manufacturers can control costs while preserving their premium status. And that’s through vertical integration, which can potentially benefit commodity producers.
One way Tesla and other EV makers can lower their price tags organically is by reducing the cost of materials that go into their EVs. And over the past couple of years, major carmakers have been chasing lithium, nickel, and cobalt specifically. These are the critical commodities for any EV.
All these metals have been surging in price during this time. To make sure that EV margins didn’t suffer too much, the manufacturing companies went on a massive commodity investment spree.
They signed takeoff agreements and provided millions of dollars for the development of the mines producing these critical materials.
Last week news broke that Tesla and Toyota, another carmaker with huge EV ambitions, might be looking at an early-stage rare-earth elements (or REE) project in Chile. The carmakers potentially want to secure a steady supply of REE metals for their EV production facilities. Rare-earth elements are used in high-performance magnets, as well as other high-tech applications.
Integrating vertically with early-stage companies could potentially lower production costs for Tesla or other EV makers. Smaller companies have less negotiating leverage than their larger counterparts and could offer their output at lower prices.
We will not be surprised to see Tesla and other EV companies pursuing small pre-production commodity plays in a bid to get the lowest price possible for their future output.
In 2011, when REEs were in high demand, their prices soared by over 35 times.
Rare-earth elements look like an interesting opportunity for investors monitoring the latest news and developments in the EV space.
This Emerging EV Tech Could Change the Game
While new mine supply is still the primary source of the commodities millions of EVs need, it’s not the only way…
Unlike the fossil fuels that burn inside internal-combustion engines (or ICE), the “fuel” that goes into EV batteries can be recycled. Even when the battery no longer holds any charge, its components can be reused.
Battery metal recycling may soon become a necessity. As the world transitions away from ICE vehicles and toward electric cars, thousands of tons of “scrap commodities” will become available, including lithium and other metals used in EV batteries.
Sooner or later, this oversupply of decommissioned EVs will require a highly efficient recycling technology. It will protect the environment and provide an alternative supply of commodities for new EV batteries.
Researchers at Rice University in Texas found a way to reuse the metals from used batteries at a low cost. The estimate stands at $118 per ton of battery waste. The recycled materials carried 77% of their capacity after 400 cycles.
So far, this technology was only tested on battery anodes. Yet researchers aim to apply the same method for the rest of the battery — cathodes, electrolytes, and mixtures. If this technology succeeds, it will be a breakthrough for the global EV space.
Thank you for your loyal readership,
The Financial Star team