Morgan Stanley's Jonas on Tesla (TSLA) and China: 'Tesla is highly exposed'

Morgan Stanley analyst Adam Jonas wonders if investors appreciate the opportunity and risks involved with depending on China for electric vehicle battery supplies.

According to Morgan Stanley, China accounts for over 30% of Tesla’s (NASDAQ: TSLA) revenues and as much as 50% or more of its profitability. Chinese chemicals/battery analyst Jack Lu says that China supplies 50% of global battery shipment and 50-75% of global battery materials including the cathode, anode, separator and electrolyte, making China a key player in advancing the cause of electrifying the global roadways.

As globalization evolves, Jonas believes that “the race for global EV battery dominance goes hand-in-hand with geopolitics and national security.”

Pelosi landed in Taipei, Taiwan’s capital, on Tuesday. Pelosi’s trip makes her the highest-ranking US politician to visit the island in 25 years, and Chinese officials have called it “provocative.”

Contemporary Amperex Technology Co. Ltd. (CATL), the world’s biggest maker of batteries for electric vehicles, has its headquarters in Fujian, across the Taiwan Strait from the island. CATL has been considering sites in the US, for a plant. The multibillion-dollar North American plant would supply Tesla Inc. and Ford Motor Co.

CATL has been in the advanced stages of site selection and was preparing to announce its selection in the coming weeks. However, according to Bloomberg, Nancy Pelosi’s trip to Taipei has caused tensions to rise to the point that CATL decided to push back announcing the plant until September or October. The report cites people familiar with the process saying that CATL’s concern is that an announcement could stoke tensions at a sensitive time.

Neither CATL nor Tesla have issued a public comment on the story.

As companies like CATL weigh their options based on geopolitical circumstances, investors may have to consider those circumstances as well. Jonas believes that Tesla’s renewable energy infrastructure is currently undervalued and overlooked for what it is. Jonas believes “events over the past 6 weeks and catalysts over the next 6 months will materially shift the narrative around what Tesla does, the markets they address, the growth profile and the global/strategic implications of the ecosystem on which they sit atop.”

By Michael Elkins

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