Complicated Designs Could Crimp Tesla Sales
Tesla Motors Inc (NASDAQ:TSLA) is an odd stock. For every major rise in Tesla stock, a prompt collapse follows. This might have something to do with the fact that the stock has risen too high too fast and its valuation is shaky at best. Tesla stock is begging for a correction—not a collapse, mind you, but a serious dose of realism could benefit everyone.
There have been a few realists attempting to understand the magic rise of Tesla stock. However, this latest one might prompt several owners of Tesla stock to perform a check of the blunt reality variety. That said, Tesla has managed to avoid the negative news about anything from allegedly faulty suspension systems to actual accidents caused by an overconfident use of its driverless technology. (Source: “Driver crashes brand-new Tesla Model X, blames Tesla,” BGR.com, June 6, 2016.)
While it sets aside some of the new problems, Tesla Motors could reach its production goals for the “Model X” within 2016. An analyst from Pacific Crest said he visited the Tesla factory in Fremont, California. He said that Tesla managers appeared to be upbeat about the company’s ability to fulfill its Model X orders. The Model X, in case you didn’t know, is the world’s first SUV with falcon wing doors—and probably the world’s first fully electric SUV. (Source: “Tesla Seen On Track To Meet Production Goals, But Risks Remain,” Investor’s Business Daily, June 8, 2016.)
The falcon wing doors have been one of the most controversial aspects of the Model X. They have, as the name implies, a wing-like opening, with the doors going up, rather than out. They allow passengers to more easily get in and out of the vehicle compared to standard doors (except maybe in an indoor parking lot with limited height). This makes them ideal for a taxi—especially a self-driving one, which is the future automotive market segment that Tesla would like to dominate. (Source: “The incredible doors on Tesla’s Model X got a sweet update,” Tech Insider, April 11, 2016.)
As fascinating and attractive as falcon wing—or gull wing—doors might be, there is a reason why these are typically the preserve of prohibitively expensive exotic cars like the Ferrari “Enzo” or the Mercedes “SLS,” a limited production $200,000 supercar that’s not meant to be a family-hauler.
Why one would need them on an SUV is anybody’s guess. They are supposed to be practical; instead, they have caused problems.
One owner told the Wall Street Journal that her new $138,000 Model X, merely a few days old, would not open the back doors during what should have been an ordinary car pooling excursion. (Source: “Quality Woes a Challenge for Tesla’s High-Volume Car,” The Wall Street Journal, April 20, 2016.)
Tesla must ponder why, apart from other existential questions, anyone would need an electric SUV, which can out-accelerate a Ferrari in a drag race while at full charge. This is important, because owners of TSLA stock will need assurances that it can address the basics of car manufacturing before it can charge ahead (pardon the pun) on its most ambitious project yet—the “Model 3.”
Tesla has managed to win over many fans, among the most dedicated (an understatement) any company or even religion could ever hope to enjoy. Evidently, my friends, the problem is not with TSLA shareholders. The problem is that Tesla has failed to persuade the market that it’s able to overcome normal car company challenges.
As things are now, many analysts worry Tesla will not be in a position to deliver the Model 3, its mass-market car, by late 2017, as the company promised. The good news is that Tesla does have an interesting concept from which to develop as a company. The stock might be a tad overvalued, even at its current depreciated price in the $220.00 range, but if the company can manage to overcome the kinds of problems every car manufacturer in the world has confronted—think fit, finish, basic reliability—Tesla stock could recover much of its lost ground. (Source: Investor’s Business Daily, op cit.)
Now, Tesla’s plans to deliver 500,000 cars in 2018 might seem rather ambitious—as ambitious as landing on Mars in less than a decade; however, if the company doesn’t address its production issues now, this typical Elon Musk chutzpa could backfire. So, for you reasonable observers of Tesla who understand there are no miracle transportation methods and no free lunches, TSLA stock may be an interesting proposition with the due cautionary measures.
Overly optimistic investors might suggest otherwise; they might advise getting into Tesla stock like the proverbial bull in a china shop, but that is not realistic. Tesla is facing increasing competition from established car companies. Mercedes-Benz, for one, will soon sell a hydrogen plug-in SUV. It’s one of the first examples of alternative vehicles the more than 120-year-old company plans to sell as part of its $10.67-billion green tech effort through 2017. (Source: “Mercedes-Benz to start selling plug-in electric-hydrogen fuel cell SUV in 2017,” Financial Review, June 13, 2016.)
There’s also Hyundai. The company, which knows how to sell quality and luxury at an affordable price, plans to compete with Tesla with a luxury electric sedan of its own under the newly separated Genesis. (Source: “Hyundai Motor plans luxury electric car under Genesis brand: executive,” Reuters, January 26, 2016.)
Tesla’s competition is catching up fast and the California-based upstart car company cannot rest on its green laurels. It has to deal with real car company issues if TSLA stock is going to regain strength.