What Does This Mercedes Benz Challenge Mean for Tesla Stock?
Tesla Motors Inc (NASDAQ:TSLA) is worth $27.0 billion, about seven times more than its revenue and chronic losses. Still, Tesla stock has multiplied by a factor of 10 in just five years.
This is hardly news to Tesla shareholders. They’ve received plenty of warnings from sensible voices about the fact that this barely decade-old company, which has yet to make a profit, is worth two-thirds the value of a company as established as General Motors Company (NYSE:GM).
For the record, GM sold close to 10.0 million cars in 2015. Tesla sold closer to 50,000 cars. There’s nothing wrong with Tesla Motors products, or even the somewhat-overly-enthusiastic leadership style of Elon Musk. But there is something decidedly odd with Tesla stock’s valuation.
It seems that many millennials really like Tesla stock, but they are taking a huge risk. Millennials rightly believe that electric cars will eventually dominate the industry. They buy the stock enthusiastically, and some say they list it in their top-10 stocks, but this is a mistake. (Source: “Tesla Motors Inc (TSLA) Is a Huge Risk for Millennials,” InvestorPlace, September 29, 2016.)
That risk has started to advance, and it comes in the form of an onslaught of competition that could crush Tesla. It’s true that Tesla has made electric vehicles cool, but the major car companies were not just going to sit by and watch.
Tesla has Shown There Is a Market for Electric Cars
Tesla has opened the electric car market. But other carmakers are responding faster and better than anyone expected. GM is about to launch a fully electric car to the market by the end of 2016: the “Chevrolet Bolt.” It can take on the much-hyped Tesla “Model 3” in every performance category and price. But GM has the critical mass to manage the whole costs thing better, while reaching out to an established worldwide clientele.
But it’s not just GM. The Japanese and Koreans are working on a number of hybrid, electric, and hydrogen cell cars. But in the car world, it’s not until the Germans make a move that the world truly pays attention. Brands like Daimler AG (FRA:DAI), the parent of Mercedes Benz—a symbol for prestige and technology—is going to shock Tesla with its plans.
The electric vehicle blitz from Mercedes has Tesla clearly in its sights, with a number of models that could pull the road from under Tesla’s wheels. More than that, Mercedes’ competition could expose the weakness of TSLA stock even to the eyes of its millennial fans.
Mercedes Will Shock Electric Car Buyers
Mercedes will launch a lineup of several new electric cars, the first of which will be released by 2018. That’s just about when the Tesla bulls expect the Model 3 to reach showrooms. By 2020, Mercedes could have more electric cars in its lineup than Tesla does, and Mercedes makes all kind of cars, from gasoline to diesel, hybrid, and natural gas.
That Daimler-Mercedes Benz wanted to enter the all-electric vehicle market was known for some time. But few could have expected that the German car company’s plans would be so ambitious. According to Reuters, Mercedes has at least six fully-electric models in development. (Source: “Daimler plans at least six electric car models: source”, Reuters, September 3, 2016.)
As promised last June, in fact, Mercedes has unveiled an all-electric long-range SUV with all of the marque brand’s performance and luxury. Mercedes has decided to invest heavily in the electric car, the new frontier of mobility, accelerating the development of more sustainable cars with low pollution in the medium term, available to the wider market.
Mercedes has been working on driverless technology more than anyone, since the 1980s in fact. So it can offer an inch-to-inch competitor to the Tesla “Model S,” but with a better dealer network, global sales infrastructure, fit and finish, reliability, and that ephemeral quality many buyers want: prestige.
It is not known the exact models of electric cars that Mercedes will present, other than the electric SUV that it showed at the Paris auto show. However, rumors suggest that at least two sedans and two SUVs will be part of Mercedes’s electric roster, or as the company calls it, “Generation EQ.” The first model is expected to debut by 2018. Given the recent prototype, we can expect the vehicles to combine tradition and innovation. Electric or gas, the three-pointed star of the historic German manufacturer has tremendous market dominating power.
The Generation EQ concept by Mercedes gets two electric motors and all-wheel drive with enough power to get from zero to 60 mph in less than five seconds, and an overall range up to 500 km. The more interesting target, by the time the car hits showrooms, is to offer a 100-km range with just five minutes of battery charging time.
But Mercedes Is Not the Only Tesla Challenger
In short, Mercedes-Benz is ready to take on Tesla. Mercedes’ entry into the electric car segment could send Tesla stock crashing with a major dose of market realism. But the thing with Mercedes, though, is that it has competitors right around its Stuttgart corner, and in Munich too. They are not waiting around either.
From Audi AG (FRA:NSU) to Porsche Automobil Holding SE (FRA:PAH3) and Bayerische Motoren Werke AG (FRA:BMW), the premium car industry is working hard to bring electric cars to market. All of them have Tesla as their target, and they could steal many potential customers away. Tesla’s success with the Model S sedan has put pressure on other luxury car manufacturers, and they have not waited long to hit back and make profits in the process.
Meanwhile, Volkswagen Group, eager to clean up its image from the “Dieselgate” scandal, will invest heavily in “green” cars. The German group wants to sell worldwide about a million electric and plug-in hybrid vehicles by 2025. It can do that through its “VW” brand, as well as through Audi and Porsche, which introduced its “Mission E” sedan prototype last year. The Porsche “J1″— that’s the code name—will be the mass-produced version of the Mission E.
But Porsche also reminds us that electric cars are less revolutionary than many people think. Indeed, the J1 or even the Mission E are hardly Porsche’s first experiments in electric mobility. Over a century ago, Ferdinand Porsche designed and built the “Egger-Lohner C.2 Phaeton” (or “P1”), an actual electric car that people—albeit a privileged few—could buy.
Finally, BMW Group, which includes the brands “BMW,” “MINI,” “BMW Motorrad,” and “Rolls-Royce Motor Cars,” as well as numerous mobility services, has presented an improved version of its “i3” electric vehicle, which has a 200-mile range in full electric mode with a hybrid gas engine.
Whether it’s BMW, Porsche or Mercedes, these brands don’t want to change the world, as Tesla’s boss Elon Musk likes to say he wants to do. They just want to make a profit for their shareholders; they are realistic. Therefore, they will launch their electric cars in the market with the profit angle already worked out, not as some afterthought, as Tesla seems to be operating (SolarCity Corp (NASDAQ:SCTY) takeover notwithstanding), exposing the problems with TSLA stock in the process.