This Should Terrify Tesla Stockholders Everywhere
Tesla Motors, Inc. (NASDAQ:TSLA) has just introduced its latest car, an SUV called the Model X. However, how long can Tesla last as the top maker of electric cars in the face of competition from more mainstream and established automakers which have plans to sell similar vehicles to take advantage of the market’s interest? Tesla stock was trading at $208.00, down over eight percent and the lowest point since last July.
Tesla Motors Moving Too Fast; TSLA Stock Suffering from Overambitious Targets
The Tesla Model S may have been developed too quickly for its own good, as several owners are complaining about reliability. Some issues are minor while others are serious, compromising the company’s reputation and future developments.
Increased competition and poor reliability could burst the TSLA bubble faster than anyone could have predicted. Aston Martin, Nissan, Mercedes Benz, Porsche, Audi, and plenty of others are already developing their own model of electric car. These include vehicles to address the high-end (in both price and performance) medium and affordable market where Tesla is not even present-at least not for now.
Most of these cars should land on the market between 2017 and 2019. Not only will they pose a serious challenge for Tesla, wiping out its relative—if limited—monopoly, but they could make the one-pony-show Tesla irrelevant.
In some ways Tesla—and soon enough TSLA stock—is suffering from its founder and CEO’s excessive ambition and perhaps even a little chutzpah. Henry Ford did not set out to make a car for the masses, conquer space and colonize a new planet, and market home power generation systems all at once. He simply set out to make a mass-market vehicle. And he was successful at it allowing the company to evolve gradually. After all, Ford also made airplanes in the 1930s, designing and selling a three-engine airliner to the airlines of its day.
Musk wants to make an electric car and send a manned mission to Mars. Not satisfied with just that, he wants to establish the basis for life on Mars by blowing up the poles of the red planet with nuclear weapons. Apart from the fact he would need thousands of these weapons and the means to take them to Mars, perhaps Musk would better spend his time ensuring his electric cars perform reliably before taking the highway to space.
That highway might well become a highway to heaven if owners of the Tesla Model S don’t watch out. In recent days, American users of Tesla have marveled at the latest software upgrade for their Tesla Model S, especially its assisted steering function. With it, direction and speed are managed automatically. The car drives itself.
Tesla’s New Car Features Won’t Save Tesla Stock
However, these features should best be left to the test track for the time being. Inevitably, users were quick to film this miracle but they also noted some key safety flaws, not mere bugs. Owners’ videos have shown the autopilot disconnecting suddenly, leaving the driver in a potentially dangerous situation.
This indicates that the system is being tested, which is not reassuring and quite unusual on a matter as crucial to automotive safety. Presumably, the Mars mission rockets will be tested more carefully. In defense of Tesla Motors, the company has clearly indicated on its web site and in its press conference that the driver must maintain control of the vehicle at all times. He or she is not supposed to let go of the steering wheel. This begs the question: what’s the point of the driverless feature, then?
Nevertheless, Tesla’s position contrasts sharply with the usual precautions of other car manufacturers when it comes to launching an assisted drive function. Renault plans to authorize such automatic steering only on separate carriageway roads while Mercedes Benz, whose S-Class already offers many driver aids, uses sensors on the steering wheel that control whether or not the driver is keeping his/her hands on the wheel.
Tesla has decided not to take this approach in a risky bias that could quickly turn against the manufacturer at the slightest accident, causing TSLA stock to drop. While on the subject of Tesla stock performance, shares have been tanking in the wake of Consumer Reports pulling its recommendation for the Tesla Model S. (Source: Jerry Hirsch, “Tesla shares dive after Consumer Reports yanks recommendation for Model S in response to several reliability issues,” Los Angeles Times, October 20, 2015.)
Tesla Motors Reliability Suffering
The Consumer Reports recommendation yanking, a car it had praised profusely just a year ago, is especially ‘shocking’ because from excellent the car has dropped to “worse than average” in its predicted reliability report. The new rating was based on a survey of 1,400 Model S owners “who chronicled an array of detailed and complicated maladies” with the drivetrain, power equipment, charging equipment and giant iPad-like center console.
They also complained about body and sunroof squeaks, rattles and leaks….As the older vehicles are getting up on miles, we are seeing some where the electric motor needs to be replaced and the onboard charging system won’t charge the battery”.
The reliability reports have likely not made much noise because the Tesla Model S, as a luxury car, is owned by people who probably have other vehicles at their disposal. Nevertheless, if Tesla wants to boost sales and launch the more affordable Model 3, it has to address reliability because consumers in the average price segments tend to rely on one vehicle.
The reliability and safety issues also warrant the question of how Tesla will be able to both increase production volumes while improving quality and addressing safety all in one go. There is a sense the company has gone too fast. This has taken the markets by surprise as reflected in TSLA stock’s price, which hit a peak of over $280.00 last July. It is now trading at $202.00 with seemingly more downside than upside momentum.
Several analysts have revised their outlook on Tesla stock and its shares were trading at the same level as early this year. Indeed, Tesla’s aerodynamic cars have been facing a rather skeptical wind lately. Elon Musk’s company has just experienced its worst weekly performance in a year on Wall Street, retreating by 11% in a single day.
Several influential analysts and investors have downgraded their outlook on Tesla stock, questioning, like the author, the manufacturer’s ability to meet its ambitious targets. For example, Barclays doubts that Tesla can meet its target of 50,000 vehicle deliveries in 2015 and also doubts the company’s ability to deliver the Model 3 in 2017 at a price of $35,000. (Source: “Barclays downgrades Tesla Motors (TSLA) to Underweight,” Streetinsider, October 9, 2015.