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Could Tesla Be 2019’s Lone Profit Grower?

Could Tesla Be 2019’s Lone Profit Grower?

As Model 3 Margins Fade, Expect Europe To Take Up The Slack.

As most major automotive makers batten down their hatches for stormy financial times ahead, U.S. upstart electric carmaker Tesla Inc is set to prosper in 2019.

Tesla has finally taken control of its Model 3 production in the U.S. and investors see big benefits to the bottom line. Long-term investors have now started worrying about Model 3 profit margins being undermined as Tesla satisfies well-heeled early adopters who want top of the range, no expense spared, and turns to sell cheaper versions.

But Tesla sales to Europe should start in 2019, and that promises rich pickings as BMW, Mercedes, Audi and Porsche owners fall for the electric magic.

Investment researcher Jefferies reckons Tesla is ideally poised to take advantage of the long awaited upsurge in electric car sales.

“Tesla is one of the few (manufacturers likely to grow earnings in 2019-20,” said Jefferies analyst Philippe Houchois.

“Unrealistic goals have been rebased. Global BEV (battery electric vehicle) share should accelerate in 2019-20. Tesla should continue to stand out with broader price points, battery security of supply, product edge and a brand that transcends the volume/premium divide,” Houchois said.

Investment bank Morgan Stanley said Model 3 labour and supplier costs continue to fall, and it sees rich pickings in Europe.

“(Tesla) sees Europe as a very significant market opportunity given the premium market is twice the size of the U.S. one. (Tesla) believes consumer awareness in Europe has significant headroom to improve and sees Germany as the most likely location for a local production facility,” Morgan Stanley analyst Adam Jonas said in a report, after meeting Tesla officials at a conference in London.

Model 3 in Europe
Tesla hasn’t officially outlined its plans for Europe, but Automotive News Europe reported in early December Model 3 sales will start in Germany, Switzerland and Norway in February. Automotive news, citing a German dealer, said a Model 3 version costing €63,000 ($72,000) with a long-range battery pack will be available. The Performance version, with two electric motors, will also be on sale.

Tesla didn’t respond to an email seeking confirmation.

The Model 3 will directly fight for sales from electric vehicles like the Jaguar I-Pace and Audi E-tron, while expensive gasoline versions of the BMW 3-Series, Mercedes C-class and Audi A4 will also be under pressure.

Paris-base Inovev, which produces global automotive analysis, said Tesla is now producing 20,000 Model 3s a month and expects overall Tesla production – Model 3, Model S and Model X – to reach over 250,000 this year, 350,000 in 2019 and 500,000 in 2020.

“Inovev considers these goals as realistic, especially since the new Tesla factory in China should soon open and two models should be launched soon, a roadster, and a compact SUV (Model Y), not to mention a 100% electric truck,” Inovev said in a report.

“True, Tesla has lost a lot of money, but the company is posting its first profits in the third quarter of 2018, and it is likely that in 2019 the brand should start to reap the rewards of its huge investment in R&D and quick chargers,” Inovev said.

Morgan Stanley, in its report from London, said Tesla reiterated its claim that it sees no need for a capital increase.

“Tesla believes it has achieved a state of self-funding without need for external capital to run the business or to address near term debt maturities,” Morgan Stanley’s Jonas said.


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