Tesla is a company that I really like. I love their products so far, and I think that Elon Musk’s enthusiasm is great. They are really the first company to produce a successful EV, and I truly hope that they will continue to be successful and bring us more great products. To be honest, I would have bought a Model S in a heartbeat if I was in the market for a large luxury saloon, but since that is just not the case I still have to continue to drive an old car with a regular combustion engine. Perhaps one day…
So, if I am so positive about the company and their products, why am I writing about it here? Generally this place is to criticize things, or to just get my frustration out. Well, unfortunately it is not all good news about Tesla, and their results presented yesterday unfortunately can’t really hide reality anymore. The ship has certainly sprung a leak, and they better do something about it soon. My fear is that whatever they do will be too little too late.
Let’s step back for a bit. I am sure many will think that I am exaggerating things, and things will turn around. Perhaps it actually will this time, but part of my frustration comes from the fact that they are consistently missing targets and self-imposed delivery objectives. Following the early Roadster, which as a first effort was really good, the Model S was a very successful launch. Yes, there had been some delays, and there may have been some quality issues early on, although I believe any of those were more the work of overzealous critics who just wanted to find something wrong. They have continued to deliver improvements on that car, and today it is quite astonishing. I still am amazed at the fact that no other manufacturer has even come close to this. The Fisker looked good, but it lacked the quality and performance to be a match for the Tesla. As for the traditional car manufacturers, I can only assume that they have been controlled by the oil lobbies for so long that they have forgotten that there are alternatives out there. Well it looks like GM has finally caught on, but the others like the BMW i3 really are far from the mark.
However, since the Model S, things seem to have gone a bit downhill. The initial business plan was then to follow up with a compact car at a much more affordable price. Instead of this, they set off developing the Model X. Now I can actually understand that change in strategy as they are a small manufacturer, and so making a luxury SUV certainly does make more sense. Logic would have it that there is a much bigger profit margin on such a car, and the market seems to be starving for these judging by the sales figures of other big luxury SUVs like the BMW X5, Porsche Cayenne etc. Unfortunately they then kept missing delivery dates. Granted they had perhaps decided to make it too complex, especially with those gull-wing like rear doors. Honestly, I still don’t see the point of those, but I suppose they may seem attractive to some buyers. I’m still waiting to see how they work when the car is covered in snow. Now they have finally begun delivering the Model X to actual customers, but by the end of 2015 only a few hundred had been delivered. I have yet to see a single proper review of one, something that I find very strange.
Now this is spilling over to the Model 3. They delays have already begun, and after having announced a presentation of the finished product in March, the statement from yesterday was a lot more unclear. My gut tells me that at best we will see some sort of mock-up, but certainly not a finished car. Some critics seem to think this might be a good thing as they are concerned about the Model 3 announcement cannibalizing sales from the other models. I don’t actually think that would be the case as they really do not target the same client. Somebody who is looking to buy a $130’000 SUV is not going to replace that with a $35’000 compact. Instead, but not presenting a finished car in March I am afraid they will instead further lose credibility in the market. Potential buyers will begin to doubt that Tesla can actually deliver, and if GM is successful with their Bolt then they will quickly turn to that instead.
The other thing that really bothers me is how the stock has been overvalued. Through a general hype and a market infatuation with Elon Musk, the stock price soared. It has now come down considerably, but I still believe it to be far too high. There are some very simple figures we can look at to illustrated this.
First of all, Tesla continue to lose money on every car they sell. In December this figure was $18’331, and that is an amount that has been on the rise as in Q4 2014 that figure was $10’945. This would show that they are actually going the wrong way as normally one would expect them to improve their efficiency, not reduce it. This also then begs the question how they would expect to make money on the Model 3 given a sales price of $35’000 as opposed to the $75’000 price for the Model S.
Today, with a market price around $150, Tesla has a market capitalization of some $22 billion. This is actually more than the $20 billion of Volvo, a successful smaller manufacturer that produces some 500’000 cars per year, which is ten times as many as Tesla. When the Tesla stock was at its peak of $280, that calculated in to a market capitalization of $44 billion, which can be compared to GM and BMW respectively at $44 billion and $46 billion. That, in my opinion, is just absurd! Granted, the Tesla market price would be high due to their potential growth, but I think at this point such enormous growth as would be required is simply not possible. Realistically the market price should be something below $50.
In a way this is like GoPro. A great product that deserves to be successful, but silly market speculators then drive the price to levels that have nothing to do with reality. It is this sort of behavior that then creates bubbles that end up driving down the whole economy, bringing along for the ride down other companies that are actually doing quite well and that have a initially had a market value in line with their financial figures and results.
At the end of the day though, if Tesla has been able to be the catalyst that has pushed regular car manufacturers to finally get serious about EVs, then they have been an outstanding success.
