E Tesla’s Cobalt Blues; Spin, Fake News Or Deception?

  • “Spin” is a form of propaganda that relies on a biased interpretation of fact to influence opinion.
  • “Fake News” is a more dishonest form of propaganda that relies on a combination of fact and falsehood to influence opinion.
  • “Deception” is an even more dishonest form of propaganda that principally relies on falsehood to influence opinion.
  • Depending on the reader’s sophistication, the cobalt discussions in Tesla’s Q1-18 earnings letter could be fairly characterized as spin or fake news, or even deception.
  • None of the possible characterizations speak well of public company that has a legal duty to provide full and fair disclosure of all material facts.

In its 2018 First Quarter Update, Tesla (TSLA) said:

 “Cells used in Model 3 are the highest energy density cells used in any electric vehicle. We have achieved this by significantly reducing cobalt content per battery pack while increasing nickel content and still maintaining superior thermal stability. The cobalt content of our Nickel-Cobalt-Aluminum cathode chemistry is already lower than next-generation cathodes that will be made by other cell producers with a Nickel-Manganese-Cobalt ratio of 8:1:1.”

While I initially viewed the claims as a creative revision of Tesla’s battery chemistry history, I had major surgery the next day and didn’t feel up to preparing a written analysis until recently. So, while this article not as timely as I’d like, I think it offers a fascinating glimpse into the mind of the world’s greatest stock promoter.

Tesla Does Not Make Lithium-ion Cells

Tesla does not make lithium-ion cells or own significant cell manufacturing technology. Instead, it buys finished cells from Panasonic (PCRFF), which developed its high-energy lithium-nickel-cobalt-aluminum, or NCA, chemistry in partnership with Sumitomo Metal Mining (SMMYY). When Panasonic delivers finished cells to Tesla, the finished cells are assembled into battery packs by Tesla employees.

Whenever Tesla makes claims relating to the energy density of cells, the materials used in cells and the performance characteristics of cells, it is taking unmerited credit for development work that Panasonic and Sumitomo finished while Tesla was building Roadster prototypes.

Tesla’s Battery Technology History

Prototypes of Tesla’s Roadster EV were revealed to the public in July 2006, four years prior to its IPO in July 2010. The first 109 Roadsters were delivered to customers in 2008.The two-seater weighed 1,305 kg, was powered by a 53-kWh lithium-ion battery pack and had an EPA estimated range of 244-miles. According to Tesla’s Emergency Responder Guide, the battery pack was built using Lithium Cobalt Oxide, or “LCO,” cells.

LCO cells have a specific energy of ~200 wh/kg, so one kilowatt hour, or kWh, of cells weighs about 5 kg. The LiCoO2 cathode powder used to manufacture LCO cells is roughly 60% cobalt by weight. Since cathode powder weight typically represents 40% of cell weight, the Roadster used roughly 2.0 kg of cathode powder and 1.2 kg of cobalt per kWh of battery capacity.

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Disclosure: I am short TSLA through long-dated PUT options.

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Comments

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Gary Anderson 4 months ago Contributor's comment

So John, the stock was halted today. Musk has his own rules, apparently. His tweets, like POTUS, is getting him into big trouble.

Linda Willis 4 months ago Member's comment

What? I totally missed that! When did that happen and why?

Gary Anderson 4 months ago Contributor's comment

Musk tweeted and it busted the balls of shorts. But it is not settled information so the stock was halted. It may be a securities violation

Linda Willis 4 months ago Member's comment

That's crazy, why did he do that and why? What do you think his plan is here?

Derek Snyder 4 months ago Member's comment

#Musk tweeted that he was thinking of taking #Tesla private.

John Petersen 4 months ago Author's comment

It's a fascinating circus to watch. I have no idea how Mr. Musk thinks he can fund a going private transaction when most institutions can't own shares in companies with limited liquidity, but I've been surprised several times over the course of my career.

John Petersen 4 months ago Author's comment

It should also be a ton of fun for individual stockholders who hold Tesla shares in margin accounts and won't be able to use private fund shares as collateral.

Carl Schwartz 3 months ago Member's comment

I bet!

Moon Kil Woong 4 months ago Contributor's comment

Spin is one thing, truth is what matters. I thank Mr. Peterson for shedding some truth on the topic of battery technology. Invariably battery technology is advancing and I suspect when electric vehicles become dominant in the auto industry new cars will not be using the current technology. Hopefully, Tesla will be able to migrate with the others. It is not a innovator in this market but is trying to scale existing technology which has serious problems ramping. This, however, seems to be the least of its worries given its real production is still so low.

John Petersen 4 months ago Author's comment

There were no credible emerging battery technologies when I started blogging 10 years ago and there are no credible emerging battery technologies today. In the battery industry it takes a decade for an innovation to go from Eureka! to first commercial product, another decade for an innovation to go from first commercial product to performance optimized product and yet another decade to go from performance optimized product to cost optimized product.

I've been reading holy grail stories on a regular basis for the past decade. None of them have delivered on the bold promises.

Gary Anderson 4 months ago Contributor's comment

Perhaps that is why Musk is considering taking Tesla private. He may understand mass production of electric cars could hit a brick wall of Cobalt supply. It would be interesting to gain your take on that.

John Petersen 4 months ago Author's comment

My next article is tentatively titled "Tesla’s Cobalt Blues; Growth Fallacies and Supply Chain Risque Majeure." I hope to habit it ready for publication tomorrow morning.

Moon Kil Woong 3 months ago Contributor's comment

Indeed he battery market moves very slow and is why he had to make do with what is rather than what may be. That said, hopefully a credible mass producible battery technology will come about soon. It is really the main stopping point for clean energy growth including electric cars. I am a big fan of hydrogen cars, however, generating and distributing the hydrogen has its own problems.

Alexa Graham 4 months ago Member's comment

How can #ElonMusk claim they will use NO cobalt in their next gen batteries? How is that even possible? Is there any basis for this claim at all? Bearish on $TSLA

John Petersen 4 months ago Author's comment

Alexa, every expert I've spoken with thinks it will be extremely difficult to take the cobalt content to zero because the cobalt stabilizes NCO chemistry and reduces oxygen outgassing, which is extremely hazardous.

This blog from Benchmark provides more detail.

www.benchmarkminerals.com/panasonic-reduces-teslas-cobalt-consumption-by-60-in-6-years/

Mike Nolan 4 months ago Member's comment

You've made a good case here. You must be brave to take this stance. Watch out! I wouldn't be surprised if Elon Musk came after you.

John Petersen 4 months ago Author's comment

Mike, I’ll never forget the phrase in that Paul Newman prison farm movie, “sometimes nothing is a real cool hand.” Compared to Mr. Musk I have nothing other than the truth.

Alexa Graham 4 months ago Member's comment

Thanks, an interesting read. Doesn't sound very promising for Tesla.

Danny Straus 4 months ago Member's comment

Every company has spin. That's the job of a good CEO/PR company. Personally I think #Musk and #Tesla are going to achieve great things. The man is a visionary. Sure, the company has it's share of challenges... what company wouldn't when trying to achieve greatness. But when they succeed, no one will remember these early problems or occasional spin. Bullish on $TSLA

John Petersen 4 months ago Author's comment

Danny, would you classify it as spin if one of your co-workers took credit for your projects as well as his own?

Danny Straus 4 months ago Member's comment

Good point.

Kurt Benson 4 months ago Member's comment

There is a difference between "spin" and outright lies. The question is which is the case here.

Jason Green 4 months ago Member's comment

I agree. At the end of the day let's remember they make great cars and their customers love them. As long as they can demand that kind of loyalty, I think the company can work out the kinks.

Dick Kaplan 4 months ago Member's comment

Yes, customer loyalty is a consideration to be factored in. But the criteria for consideration when deciding if a company is worthy of your business, is different than the criteria of determining whether it's a sound investment. Cautious on $TSLA.

Harry Goldstein 4 months ago Member's comment

The man is somewhat unhinged. Have you read some of his recent earnings statements or Twitter rants? Like calling one of the cave rescuers of those missing Thai boys a pedophile simply because he said Musk's mini-sub could not help in the rescue? Clearly #Musk has a loose connection with the truth. I'd stay away.

Alpha Stockman 4 months ago Member's comment

Juan Carlos Zuleta, what's your take on this $TSLA article? You seem to know a lot about lithium and cobalt.

Bill Johnson 4 months ago Member's comment

A well written, eye-opening article. Highly recommended.

John Petersen 4 months ago Author's comment

Many thanks for the kind words Bill.

Gary Anderson 4 months ago Contributor's comment

Yes, Bill. Seems like the Carnival Barker who runs Tesla is almost in the Trump category in handling the truth carelessly.