Tesla Clinches Three-Year Pricing Deal With Panasonic For Battery Cells

Tesla Inc. (TSLA) said it has signed a three-year pricing agreement with Panasonic Corp. for the manufacturing and supply of lithium-ion battery cells at the Gigafactory Nevada.

The agreement effective from April 1 until March 31, 2023, sets the specific terms between the two parties with respect to pricing, planned investments and new technology. It also determines production capacity commitments by Panasonic and purchase volume commitments by Tesla over the first two years of the agreement. Financial terms of the deal weren’t disclosed.

The new agreement builds on previous deals between Tesla and Panasonic related to the production and supply of lithium-ion battery cells. In November 2010, Panasonic invested $30 million in a private placement of Tesla common stock.

In addition, Tesla also signed an amendment to the company’s general terms and conditions of its 2014 partnership agreement with Panasonic, which modifies the term to expire 10 years after Panasonic achieves certain manufacturing milestones

The U.S. electric vehicle maker has last week been reportedly given the green light by the Chinese government to build model 3 vehicles in the country equipped with lithium iron phosphate (LFP) batteries. Tesla is said to be in advanced talks to use LFP batteries from CATL that contain no cobalt – one of the most expensive metals in electric vehicle (EV) batteries – in cars made at its China plant.

The value of Tesla shares has this year more than doubled. The stock retreated less than 1% to close at $982.13 on Tuesday.

Five-star analyst Ben Kallo at Robert W. Baird this week reiterated a Hold rating on the stock with a $700 price target, citing a recent management meeting.

“Sentiment was positive across our meetings; investors appear increasingly willing to look through near-term noise and focus on future (2021+) revenue and earnings growth drivers,” Kallo wrote in a note to investors. “This is reasonable, in our view, given the numerous projects underway which could meaningfully contribute to growth over time. Nearer term, the upcoming Battery Day and subsidies in Germany were areas of focus.”

In line with Kallo’s outlook, the stock has a Hold analyst consensus with 11 Sell ratings and 9 Hold ratings versus 8 Buy ratings. Meanwhile, the Street’s $649.95 average price target implies 34% downside potential in the shares over the coming year. (See Tesla’s stock analysis on TipRanks).

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