German Competition Will Rebound In Tesla’s Favor.
“Consumers will ultimately discover Tesla’s technological and price – better value for money – leadership, as the advantage of Tesla over competitors is too significant to be ignored”
Tesla investors are reeling as the share price dives, basic questions are being asked about the company’s long-term survival, and investment supporters jump ship.
Berenberg Bank of Hamburg, Germany though, a long-term believer in Tesla, is hanging on in there, saying worries about demand for Tesla vehicles are overblown. The investment bank said sales weakness was more about logistical problems, as it cranked up sales of the Model 3 in Europe. And the long-feared assault from German carmakers like Mercedes, BMW, Audi and Porsche, could actually be a plus for Tesla because the increased interest in electric cars whipped up by publicity will reveal its superior and cheaper technology, the bank said in a report.
Meanwhile the Model 3 stormed to the top of the Western Europe battery electric car sales charts in the first quarter of 2019 from a standing start, outselling the second best Renault Zoe with almost twice as many sales. This was all the more remarkable because the Model 3 was only available for sale from February, and the price of the Tesla is probably more than twice and maybe occasionally even 3 times that of the little Zoe city car.
According to data compiled by Berlin-based automotive industry analyst Matthias Schmidt (www.schmidtmatthias.de), Tesla sold 19,482 Model 3s in the first quarter compared with the second placed Zoe’s 11,049 and the Nissan Leaf with 10,315. That included 14,652 Model 3s in March, but that slowed down to 3,721 in April, according to carsalesbase.com. Carsalesbase.com data shows in all of 2018 Tesla sales in Europe totalled 29,614 compared with its U.S. sales of 191,627.
Investors in Tesla have long been nervous about the fate of the company when German carmakers like Mercedes, BMW, Audi and Porsche arrive late but well prepared in the electric car game. According to Berenberg Bank, this could benefit the upstart American company.
“Demand support could ironically come from legacy car makers (mainly the Germans but including Jaguar Land Rover) increased electric vehicle marketing activities, as consumers ultimately discover Tesla’s more competitive offering, on both technology and price,” Berenberg Bank analyst Alexander Haissl said.
“Consumers will ultimately discover Tesla’s technological and price – better value for money – leadership, as the advantage of Tesla over competitors is too significant to be ignored and dismissed. It will also become apparent that EV launches from traditional (manufacturers) also come with problems and delays. Quality issues can occur in early stages. Good examples of these are the recent recalls from Audi (E-tron) and the Jaguar I-Pace in the U.S.,” Haissl said.
The Tesla share price has been under pressure lately after first quarter deliveries fell over 30% to around 63,000 compared with the previous quarter. Tesla sales would have to accelerate hard if the company guidance of up to 400,000 vehicles could be delivered in 2019. Tesla finances are also causing concern with $900 million of cash burn in the first quarter. Tesla said it will start generating cash in the rest of this year.
Tesla’s share price closed at $214.92 Friday. Over the last 12 months it has been as high as $387.46 and as low as $176.99, according to Reuters’ data.
Long-time supporter Morgan Stanley analyst Adam Jonas has turned against Tesla, who questioned whether there will be enough demand in a market which favors SUVs.
“This year’s sharp deceleration in demand has led to a substantial curtailment of the company’s ability to self-fund through free cash flow generation, at the margin potentially impacting the firm’s access to capital,” Jonas said in a report last month.
“Tesla is a large and highly vertically integrated company, capacitized to build between 500,000 and 1 million units annually. In our opinion, Tesla has grown too big relative to near-term demand, putting great strain on the fundamentals,” the report said.
Berenberg Bank’s Haissl is confident about Tesla’s prospects though, saying he expects a solid second quarter with significant free cash flow.
“We remain optimistic about Tesla’s ability to generate material free cash flow going forward, as higher volumes and working capital inflows more than offset higher investments, versus as low level in Q1,” Haissl said.
“The market still underestimates Tesla’s technological and cost advantage, which will eventually result in superior returns and continued market share gains,” Haissl said.