Could Tesla’s Model X drive us towards electric cars for all?.
Shares of the Palo Alto electric car company have dropped 22% from their three-month high of $282.26 on July 20 to close Friday at $222.69. Jim Chanos of Kynikos laid out more of his reasoning for being bearish on Tesla Motors Inc. (NASDAQ:TSLA) during an interview with “CNN Money” this week.
The Model X is a SUV with gull-wing doors – as made famous by the DeLorean from the film “Back to the Future” – giving it the appearance of a supercar, to go with its hefty pricetag. Hilton reported last week that it plans to expand EV charging facility to 100 of its domestic hotels by the end of next year, up from 50 hotels that currently offer the service. And famed short seller Jim Chanos said the company, whose vehicles start at $US75,000, was still far from being a mass-market manufacturer. “In order to sell millions of cars, which is where the stock is valued … they’ve got a long way to go,” Mr Chanos, the billionaire hedge fund manager who founded Kynikos Associates, told CNN. But filter out the hype, and the question is whether this will make the slightest difference to encouraging a broader shift away from fossil fuel-powered cars to electric vehicles. The company will offer different types of charging stations that will be able to charge Tesla’s first EV, the Roadster, its premium sedan, the Model S, and the recently launched sports utility vehicle, Model X.
Mr Chanos, who has voiced concerns about Tesla in the past, said it would take a “lot of capital investment” for the company to reach mass-market status like BMW or General Motors. Let’s take a look at this question from the perspective of China, the world’s largest car market and one officially committed to leading the world when it comes to .
Tesla, a long-time momentum stock, catapulted the past two years, soaring 556% during 2013 and 2014, well outperforming the S&P 500’s 44% gain during that time. At around US$130,000 each, and likely more including import duties, it’s obvious that this is a car that will only be affordable in China to a tiny elite. General Electric is expected to power Hilton’s charging stations. “By teaming with leading organizations like Tesla and GE to add more electric vehicle charging stations, we’re making the travel process easier for a growing number of our guests,” Hilton Worldwide Global Executive VP of Brands, Jim Holthouser, said in the press release. The company is having trouble ramping up manufacturing of the new crossover. “Our fundamental difference with the Tesla bulls lies around the company’s ability to become a successful mass-market [automaker] — while the bulls believe Tesla will be the next Ford, we see many challenges ahead,” Johnson said.
But the stock has hit several speed bumps in 2015, down 0.2% this year, amid concerns about the company’s ability to meet delivery targets and turn a profit. The charging stations are offered at various Hilton properties from luxury to focused service, such as DoubleTree by Hilton Durango, Hampton Inn By Hilton Reno, Hilton Los Angeles Airport, and The Waldorf Astoria New York.
It was expected that after the launch of the vehicle, consumers and investors will be fascinated with its engineering, positively reflecting on the stock. The statement also extends to cover other factors such as difficulties and comparing electric motors with internal combustion engines, and environmental impacts that could upset the vehicle’s horsepower. Chanos outlined his bearish thesis on Tesla two years ago at a Heard on the Street conference, saying that Tesla had gone beyond an interesting product or innovation to becoming speculative and a “cult” stock. So the “success” of electric vehicles revolves in large part around changing “common-sense” in these areas – a big and complex challenge, where so far change is slow in coming.
But one strategy that does seem to be effective in disrupting the dominance of the fossil-fuelled internal combustion engine is designing and selling glamorous, elite, branded electric cars – a niche in which Tesla leads, including in China. According to the Monthly Scorecard of InsideEV, over 350,000 electric cars have been sold in the US since 2010 and roughly 120,000 of those were sold last year. But he also noted that doesn’t necessarily mean he’s short every company he talks about, making it unclear whether he’s actually been short Tesla.
This is chiefly because of the cost of the batteries, which leads to the car’s price rising unfavourably in comparison to combustion engine vehicles, while bringing little additional consumer appeal and many unfamiliar risks. Other highly sold EVs include Nissan LEAF, General Motors Company’s (NYSE:GM) Chevrolet Volt, BMW i3, and Ford Motor Company’s (NYSE:F) Fusion Energi and C-Max Energi. It is interesting to see that the research firm’s previous target price estimates were already 18.5% lower than Tesla stock price of $220.69 on Friday’s close. Musk has said the X would start at about $5,000 more than a comparably equipped Model S sedan, which would put the starting price at about $81,200 before federal and state electric car purchase incentives. Although there have been doubts over the company’s capability to meet such ambitious guidance, no one could ignore the fact the company has performed exceptionally well over the past few years and has come under the radar of 100-year old traditional automakers and US tech giants, Apple Inc (NASDAQ:AAPL) and Alphabet Inc. (NASDAQ:GOOGL), who wish to enter the promising industry.
Elon Musk, the man behind Tesla, can be accredited for the company’s overwhelming success, as his innovative ideas have led to Tesla doing things way ahead of its time. The company not only has technologically advanced vehicles, with top performance level that is evident from the recent thrashing of Consumer Reports’ rating system. It has some extraordinary plans that other industry players might not even consider undertaking due to their lack of ability, according to some analysts. Tesla’s biggest bull, Morgan Stanley ’s Adam Jonas, even threw in the towel on Tesla shares Tuesday, slicing his price target to $450 from $465, saying the Model X’s “very expensive” price makes 2016 volume targets difficult to achieve. “[Model X] deliveries started last week and are continuing as we ramp production, customers are delighted,” said a Tesla spokesperson who declined to comment on the company’s share price or recent remarks by analysts or Mr. Tesla is currently the market leader in terms of lithium-ion batteries and it aims to further reduce its battery cost by at least 30% through massive production at its $5 billion, under-construction plant, the Gigafactory.
The primary premise laid to achieve this positive profitability figure is Tesla’s move into mass-market cars like Model 3, and possible launch of Model Y. Chanos While demand for Tesla’s pricey electric vehicles remains strong, the reality that the company won’t get much benefit from its Model X in the final quarter of the year is weighing on shares and causing Wall Street to take caution. And as a highly visible car (normal electric cars are both so few in number and look so much like any other that they go unnoticed) seeing them on the streets also shapes what electric cars mean to people. Tesla’s distinctive approach to home-charging combined with long-range batteries is also stimulating greater efforts from government to put charging infrastructure in place. Another problem, which the company’s ongoing production issue may cause, is the delay in launching its first mass-marketed Model 3, which is believed to be the fuel to drive the company forward in the future.
This is vital as a more widespread charging infrastructure is key to mitigating one of the main hurdles preventing drivers buying electric vehicles: the fear of running out of power. Sales also support Tesla’s efforts to transform the economics of lithium batteries, where cheaper, more powerful batteries would begin to shift the cost-competitiveness to the buyer away from conventional towards electric vehicles.
Yet, the electric vehicle (EV) company has a market value of $29.4 billion, which is not far below General Motors’ $52.9 billion and Ford’s $59.5 billion market capitalization. So while we can safely say that the Tesla Model X will not sell in sufficient numbers to transform our roads and cities single-handedly, it may yet inspire a step-change in manufacturer competition and innovation, government support and consumer demand for electric vehicles more generally, not least in China.
Moreover, it connects and establishes its massive user community by spreading content over the online platform, allowing people to share their own experiences, and live-streaming a launch event (Model X)/a product announcement (Tesla Energy).