Raw Material Shortages May Not Be Hurting Tesla Right Now, But This Other Shortfall Might

Following a tour of Tesla Inc's TSLA Fremont factory, Morgan Stanley analyst Adam Jonas came away confident of the company's ability to emerge unscathed from the Ukraine crisis-induced raw materials shortages.

What Happened: Tesla has long-term contracts in place that will act as a hedge against any hike in raw material prices, Jonas said. The impact of commodity pressure was already evident in the EV maker's fourth-quarter results, the analyst noted.

He therefore doesn't expect any sudden impact to margins from the price increases. "In addition, as we start to lap periods of higher prices from September last year and only recently this week after layering in further price increases, this will more than positively offset any headwinds in later quarters," Jonas said.

Tesla, the analyst said, is not worried about nickel, given its reliance on lithium iron phosphate (LiFP) for 50% of its standard range models.

These batteries don't need the more expensive nickel or cobalt, he said.

The share of LiFP batteries will increase to 60-70% of the total units if nickel became uneconomic, the analyst explained.

Instead, Tesla is more stressed about chip supply in the near term, Jonas said.

Related Link:EV Sales Are On The Rise, But Tesla's Global Market Share Is Shrinking: Analyst

Why It's Important: Tesla has implemented a series of price revisions in 2021. After a relative calm on the pricing front thus far in 2022, the company upwardly adjusted prices twice over the past week.

The first price hike increased the prices of all its vehicles equipped with long-range batteries by $1,000. The second round saw price increments of bigger magnitudes across all its models.

Jonas sees the moves as a demonstration of Tesla's pricing power. "Tesla is raising prices from a position of strength and is still not seeing wait times go down, which range from 2-3 months wait to 6+ months depending on the model," he said.

The company may not have to cut prices until 2024/2025 to maintain market share, the analyst said. By that time, full-self driving software revenue will begin to rev up and contribute more to profit, he added.

At last check, Tesla shares were adding 3.75% to $832.00.