ELECTRIC VEHICLE DOMINANCE
Carmaker has yet to prove it can deliver on Musk’s dreams
Unexpected manufacturing problems and the sudden emergence of competition are leading Tesla backers to reassess whether the Silicon Valley automaker’s head start is fading.
After Tesla’s second-quarter production faltered and Volvo announced plans to switch to electric vehicles and hybrids, Tesla investors were shaken.
The company’s stock lost more than 16% over a three-day span last week.
Taken together, the developments illustrate the volatility of the budding world of electric vehicles and questions about Tesla CEO Elon Musk’s ability to conquer the market.
“I don’t think there should be any shock that there’s increasing competition in the electric and hybrid electric field,” said Efraim Levy, a CFRA Research analyst who tracks Tesla. “All the major companies are announcing that they’re making that shift.”
Here are four key threats to Tesla’s big plans:
LUXURY BRANDS
Tesla’s Model S sedan and Model X crossover remain essentially alone in the market for ultraluxury electric vehicles with price tags sometimes topping $100,000. But that will change. Volkswagen Group, the world’s largest automaker by sales volume, is aiming squarely at Tesla.
The company’s Porsche brand is planning a 600-horsepower electric sports car dubbed the Mission E, which generated buzz among auto enthusiasts for its sleek design when it was revealed in late 2015.
Meanwhile, VW’s luxury Audi lineup is planning the Audi e-tron quattro luxury electric crossover concept.
Other luxury brands, including Mercedes and BMW, are expected to hatch similar models.
MAINSTREAM MODELS
General Motors stunned the auto industry by beating Tesla to the market with an affordable, long-range electric car, the Chevrolet Bolt. The Bolt starts at about $30,000 after tax credits, not much more than Tesla’s new Model 3 sedan, which begins production this month. And the Bolt gets better range: about 238 miles on a battery charge, compared to the Model 3’s 215. Chevy lacks the pizzazz associated with the Tesla brand, Levy said. “But they’re there first,” Levy said. “There’s going to be more choices and more competition.”
MANUFACTURING
Tesla concerned investors with Monday’s announcement that it faced “severe” shortfalls in supply of high-range batteries during the second quarter. That caused the company to miss its sales goals for the quarter.
While Tesla said the supply problems had been resolved, the episode underscores the difficulty in manufacturing one of the most complex consumer products on the planet. The world’s major automakers simply have more experience at it, potentially giving them an edge when production ramps up.
“That’s something their competitors have much more experience in,” Edmunds.com analyst Jessica Caldwell said.
Tesla has a significant advantage with its new battery factory in Nevada, which Musk believes will deliver major cost reductions that will give the company a competitive edge. But other major automakers have “scale advantages” with their worldwide operations, and that “likely means that the cost-per-vehicle advantage will not be meaningful,” Barclays analyst Brian Johnson said in a note to investors. Tesla is “a very tough competitor we are respecting a lot,” Volvo global CEO Hakan Samuelsson said in a press conference. “With this decision, we are really becoming the second premium carmaker of the world which will also be electrified.”
UNCERTAIN DEMAND
Tesla received about 400,000 refundable deposits for the Model 3, but serious questions remain about the long-term demand for its vehicles.
“Tesla’s in a unique position where they have hundreds of thousands of orders they have to fill,” Caldwell said. “But after that, how much demand is there? I’m not really sure yet.”
There’s already evidence that “demand is plateauing” for the Model S and Model X, Johnson said.
Seemingly anticipating the demand issues, Musk has already announced plans for a new mass-market crossover vehicle and has signaled he’s considering a pickup truck.
A Tesla spokesperson was not available to comment.