Is This a Threat to TSLA Stock?
Tesla Motors, Inc. (NASDAQ:TSLA) is headed lower on news of new “Tesla killers” hitting the market. Has Elon Musk’s strategy to go from a high-priced, luxury electric vehicle (EV) to a low-priced, economy EV backfired on holders of TSLA stock?
The Consumer Electronics Show (CES) is credited for the mass adoption of new technologies into the mainstream industry each year. This year’s show, CES 2016, is vowing to be a game-changer, particularly for the virtual reality (VR) and drone industries. Yet, there’s one “old” technology that, having remained sidelined for a long while, might have finally received significant traction at this year’s show.
Let’s rewind back to late 2013, when Tesla CEO Elon Musk first made a bold prediction that many said was too outrageous to ever come true.
Musk claimed that the future of all transport would soon be electric, with the exception of space travel. Surely, that had sounded absurd to many at that time, given that there were only a handful of hybrid EVs out on the market and all-electric Teslas were going bust.
Even with thin top-line margins and a negative bottom line, Tesla has been pushing to commercialize EV technology for years now. Elon Musk’s efforts in this regard must not be underestimated.
Fast-forward to last week at CES 2016 and you’ll realize that Musk was more right in his prediction than wrong. In fact, Elon Musk’s resilience to bring this technology to the mainstream has finally paid off. Big automakers that had long avoided making bets in this niche owing to modest demand are finally giving in. This only means that Musk’s dream of an all-electric future for the auto industry might become a reality sooner than the market had expected.
This year’s CES probably hosted the biggest adoption of EV technology yet. Virtually all the big, traditional automakers showcased their hybrid and all-electric vehicles.
“Bolt” is Good News for Tesla
One particular EV that has received a lot of thumbs-up from its test drivers and is already being touted as Tesla’s biggest threat is General Motors Company’s (NYSE:GM) “Chevy Bolt,” a low-priced, all-electric car for the masses that received considerable appreciation at CES and later at the Detroit Auto Show.
Take note that Bolt’s price point has intentionally been set around the same level where Tesla’s “Model 3” is rumored to be priced.
Now, it wouldn’t be wrong to say that General Motors had preempted Tesla’s growing stronghold over the EV industry and decided to introduce a competitive alternative ahead of time.
But GM’s move bodes well for Tesla. Yes, the Bolt is actually good news for the latter. Let me explain the premise for my claim.
As the largest automaker in the U.S., General Motors does enjoy an edge over Tesla. The company manufactures and sells more cars in a month than Tesla does in a year. However, the comparison is unjustified, since the data set is skewed. General Motors may have control over the traditional car industry, but Tesla is more seasoned in the EV industry.
Bear in mind that Tesla has emerged as a trendsetter by being an early mover. The company boasts a positive reputation as a socially responsible company led by a visionary leader. Compare this to General Motors, which has repeatedly been bashed for its corporate irresponsibility, while some have gone so far as to call it “Government Motors” for the bailouts it received, funded by taxpayers’ money.
On top of that, Tesla offers superior technology in its EVs than the Chevy Bolt. In fact, Elon Musk is now predicting that Tesla vehicles will be driving themselves across the country in the next two years.
And to give the world a glimpse into what Tesla is working on, the company has just rolled out a new update for its “Autopilot” software that surely furthers Tesla’s game in the self-driving technology field. Called “Summon,” with this new featured, all Tesla drivers have to do is swipe their thumb across their phone’s screen and the car will open and close the garage door, parking itself, and shut itself down—or alternatively, it will start itself, open and close the garage door, and drive to you. (Source: “Elon Musk predicts a Tesla will be able to drive itself across the country in 2018,” The Verge, January 11, 2016.)
So while the Chevy Bolt may receive some traction from the mass market, Tesla will continue to enjoy premium brand recognition, even with its lower-priced Model 3. So, to say that Musk’s strategy, to go from a pricey EV to an affordable one, may have backfired on Tesla stock is inaccurate.
The Bottom Line on TSLA Stock
At current low gas prices, the masses could make a shift to EVs only if the technology was commercialized. As more and more automakers jump into this niche, it will hopefully expand into a full-blown industry much faster than Tesla could achieve on its own.
The bottom line: competition bodes well for TSLA stock, as the company sets to make a mark in this fast-growing industry.