Tesla Poised To Sweep All Before It.
Or Will Traditional Companies Reel It In?
“The 13-year old company is unprofitable, deeply indebted and delivered just 76,000 cars last year”
Tesla Inc’s spectacular rise on the stock market has forced investors to re-examine their views on the electric car company and opposing camps are both taking comfort from the latest evidence.
Some say Tesla is a unique, technology-embracing company rewriting the stuffy conventional wisdoms of the automotive industry. Others say Tesla is pushing itself out into exposed territory and might be consumed by competition from the legacy automakers exploiting their bigger scale.
Tesla’s first quarter statement showed deliveries of Model S sedans and Model X SUVs reached just over 25,000, bringing the first half target of 47,000 to 50,000 within reach. The stock blasted ahead and breached $300 a share, briefly touching $304.88 before dipping again.
Long term supporter of the stock, Morgan Stanley analyst Adam Jonas, admitted surprise that his long term price target for the stock $305 – had been approached so soon.
Jonas pointed out some basics about Tesla which he thought would reassure investors. Tesla isn’t just an upstart, it is busily rewriting the rules for the industry.
“The sooner investors view Tesla as a transportation/infrastructure company rather than just a car company, the more we believe the industry events to come over the next 12 to 18 months will make sense,” Jonas said in a report.
Pushing the boundaries
“Look for Tesla to keep pushing the boundaries of passenger and pedestrian safety to the highest level. The distracted driving – aka testing and driving – problem is accelerating and highlighting the very significant shortfalls,” he said.
“Our discussions with auto companies and regulators suggest a high level of lawmaker attention to the unprecedented spike in fatalities on U.S. roads. Tesla is aiming to produce human-driven cars that are 10 times safer than the average car on the road,” Jonas said.
The belief is that as deaths on U.S. roads continue to rise, vehicle safety will become the biggest priority for new car buyers, and Tesla is seen as a leader in safety technology for both drivers and pedestrians.
Barclays Equity Research analyst Brian Johnson is a sceptic on Tesla, rates it “underweight” and questions some of the widely held beliefs by Tesla supporters.
- ’Tesla has a significant and sustainable cost advantage in battery packs’. “Tesla is likely on its way to a $100/kWh battery cost, but we expect it will take longer than the company says. And while it has a lead right now, competition is narrowing the gap – and a narrower gap in battery costs leaves room for the scale advantages of legacy auto companies to bridge the overall vehicle cost gap with Tesla,” Johnson said.
- ‘Tesla has a significant lead in autonomous driving. Meaning it will be the first by several years to achieve a fully self-driving vehicle’ “Roll-out of autopilot doesn’t mean that Tesla is ahead of competition – rather, it’s just willing to beta test on customers. And while Tesla has aggregated significant data, the quality is unclear. Tesla lacks the industrial rigor and scale required for autonomous, in our view,” Johnson said.
- ‘Tesla will be a dominant market share player in the auto industry, similar to the iPhone’. “There is no shortage of EV competition entering the market. The bigger issue is around supply – ramp-up and manufacturing inefficiencies and cash burn may prevent Tesla from building to its demand,” Johnson said.
- ‘Tesla will dominate in areas outside of auto, like energy, mobility and insurance’. Johnson doesn’t think Tesla has the inside track in any of these areas. He said Tesla’s stock is disconnected from fundamentals and driven by momentum, which will increase as Model 3 hype ramps up.
Tesla’s Model 3, smaller and much cheaper than the Model S and Model X, is expected to reach the public by the end of this year. The hope is the Model 3 will help Tesla move from being a premium car maker to a mass-market one
According to the Wall Street Journal’s Tim Higgins and Christina Rogers, Tesla remains a shaky bet.
“The 13-year old company is unprofitable, deeply indebted and delivered just 76,000 cars last year. Its Autopilot mode is untested as a fully autonomous feature and has raised safety concerns,” they said.
Ratings agency Standard & Poors said Tesla’s liquidity had improved following its recent capital increase but worried about its future with a “negative” outlook.
“The negative outlook reflects the company’s increased execution risks in 2017, and the considerable lack of visibility around when Tesla will be able to sustain positive free operating cash flow, which could cause us to downgrade it over the next 12 months.” S&P said in a report.