Experts Take A Cooler Look At Tesla Prospects.
“Can Tesla convert a hugely loyal customer base into a profitable business”
Investor euphoria pushed Tesla Motor’s stock price higher following the ecstatic reaction to the reveal of the Model 3 prototype, but there were some voices of caution to be heard.
The Wall Street Journal’s MoneyBeat column said the huge number of “reservations” generated for the Model 3 – 140,000 during the press conference rising to 350,000 afterwards according to CEO Elon Musk – won’t do much to alter Tesla’s financial position.
The Model 3 is Tesla’s first attempt to enter the affordable mass market for electric cars, with the price starting at $35,500, before taxes and government rebates.
“But the big question for investors still remains: Can Tesla convert a hugely loyal customer base into a profitable business,” the Wall Street Journal’s Charley Grant said.
Grant said if Tesla eventually winds up with 300,000 reservations, customers put down $1,000 which would add up to $300 million if nobody sought a refund. Tesla’s 2015 free cash flow was a negative $2.2 billion so the new deposit money is less than two months worth of cash.
2017 at the earliest
“With the Model 3 not expected to arrive until 2017 at the earliest, Tesla’s need for cash isn’t going away, not matter how much excitement Mr Musk generates for his latest engineering feat,” Grant said.
The Financial Times Lex column pointed out that Tesla has a market capitalization of $30 billion and sales of $4 billion, “cash flow open to interpretation”. It pointed out that there was total of 107,000 Teslas on the road, compared with the 500,000 production the company has targeted for 2020.
“With his silicon-laden vehicles and paradigm shifting approach, founder Elon Musk appears to have one foot in the software business. Ramping up delivery of software is a doddle, though. Doing the same with steel, rubber, plastic and lithium is quite another,” Lex said.
“Cheaper cars attract a more cost-conscious customer to those drawn to its groundbreaking roadster, and draw a wider range of competitors. There is everything left to prove,” Lex said.
Global Equities Research of Redwood Shores, California, definitely in the euphoria group after declaring that the traditional competition can’t come close to competing with the Model 3, said questions over Tesla’s ability to ramp up production don’t add up to much.
The Model 3 will be much simpler to make with 60% of the body made from steel with some aluminium and plastic polymer.
“This makes manufacturing very simple and straight forward,” it said.
Professor Ferdinand Dudenhoeffer of the Center for Automotive Research (CAR) at the University of Duisberg-Essen, Germany liked what he saw from the reveal of the Model 3, saying it would outsell the BMW i3 electric city car. He applauded Tesla for its customer-oriented policies including the investment in rapid charging systems.
The emergence of electric cars like the Chevrolet Bolt shows the battery electric car is the winning way, and the recent production of plug-in hybrids an expensive blind alley. Even in Europe, the scandal surrounding Volkswagen has tainted diesel engines and opened up the path for electric cars, Dudenhoeffer said.