Tesla Mulls LG Chem Investment To Boost Battery Supply- Report

Tesla (TSLA) is considering snapping up a stake in LG Energy Solution, soon to be spun off from LG Chem, in order to ensure a stable supply of batteries, reports The Korea Times.

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“Tesla is looking to acquire a stake in LG Energy Solution. Specifically, Tesla is said to be exploring taking up to a 10 percent stake in LG Energy Solution,” one bank sector source told the publisher on condition of anonymity.

Meanwhile another Korea Times source added: “It’s quite early to tell if Tesla has an actual plan to acquire a stake in LG Energy Solution. But given Tesla’s growing attempts at cost cuts and moves in producing round batteries, it does make sense that Tesla would explore an opportunity to buy a stake in LG Energy Solution.”

Indeed, LG Chem is already a key battery supplier to Tesla and General Motors. According to reports it plans to spin off its battery unit as soon as December 1- with LG Chem valuing the unit at 13 trillion won (US$11 billion), with the potential to climb to 30 trillion ($25 billion) in the next four years.

“We believe it is the right time to spin off as the electric vehicle battery business began to yield a sizable profit amid the rapid growth of the battery industry,” the company said in a statement.

Recently, Tesla’s CEO Elon Musk announced a number of production and manufacturing developments at the company’s hotly-anticipated “Battery Day” on Sept. 22. In the end, according to RBC Capital analyst Joseph Spak, the content on offer was somewhat of a letdown.

“Overall, we believe Tesla’s long-awaited battery day disappointed elevated expectations, as it highlighted some near-term stagnation in the price reduction of current lithium ion batteries,” Spak said.

Nonetheless, Oppenheimer analyst Colin Rusch was still upbeat on the stock and said that he would buy Tesla shares “on any near-term weakness.” He reiterated his Buy rating on the stock with a price target of $451 (10.7% upside potential) on Sept. 23.

Rusch argued that Tesla outlined a “robust reimagining of battery design, manufacturing and performance,” and planned to bring a $25,000 vehicle in three years and a 20-times capacity increase by 2030. He also pointed out that Tesla’s 30% to 40% delivery growth guidance for 2020 is above the Street estimates. (See TSLA stock analysis on TipRanks).

Currently, the Street remains sidelined on Tesla stock. The Hold analyst consensus is based on 14 Holds, 6 Buys and 10 Sells. The $310 average price target implies downside potential of 26% to current levels. Shares have rallied by an extraordinary 403% year-to-date.