Tesla Motors Inc (NASDAQ:TSLA) stock investors are probably not in a very good mood recently. In just six months, TSLA stock has plunged more than 40%. If you had bought Tesla stock last July, you would have lost approximately $100.00 per share at this point—ouch!
Competition is getting intense in the electric vehicle (EV) industry, although most competitors are not really a threat to Tesla. Electric cars like the Nissan “Leaf” are targeting a different audience altogether compared to Tesla’s “Model S”—an electric luxury sports sedan that when fully loaded, costs way more than $100,000.
This time, however, a different type of player is joining the game. Should Elon Musk be worried?
Could This Be the Tesla Killer?
I’m talking about Aston Martin, a luxury sports car manufacturer that also provides transportation for the famous fictional British Secret Service agent James Bond.
Aston Martin isn’t exactly known for building environmentally friendly automobiles. If you want to buy an Aston Martin today, you can choose from the ones that are powered by a 4.7-liter V8 or you can get one that has the mighty six-liter V12. Both the V8 and the V12 engines are powered by gasoline, of course. (Source: “Model Range,” Aston Martin, last accessed February 19, 2016.)
So, how can a maker of gas-guzzlers suddenly switch to full-electric mode? Well, by partnering with LeEco, the Chinese backer of the electric car start-up Faraday Future.
On February 17, Aston Martin announced that it will work with LeEco and Faraday Future to build the “RapidE,” a fully electric version of the Aston Martin “Rapide S” sports sedan. (Source: “Aston Martin and LeEco Partner to Co-Develop Electric Vehicle,” Aston Martin, February 17, 2016.)
This might sound like bad news for Tesla. Unlike current competitors, such as General Motors and Nissan, Aston Martin is selling cars that start at $120,000. If the RapidE enters the market, it could be in direct competition with Tesla’s Model S. Moreover, it won’t help Tesla that the Aston Martin Rapide is drop-dead gorgeous.
TSLA Stock: Always One Step Ahead in the Game
So, does that mean Tesla would be in trouble? Not really. As the pioneer of high-end electric vehicles, Tesla is always one step ahead in the game.
When a product is selling well, it will attract new entrants into the business. Elon Musk knows that and has made plans accordingly.
You see, while companies like Porsche and Aston Martin are trying to break into the high-end EV segment dominated by Tesla’s Model S, Tesla is building the next big thing—a performance EV for the mass market.
The mass-market EV is named the “Model 3” and will start at $35,000 before government incentives. During its quarterly earnings call, Elon Musk confirmed that the Model 3 will be available for preorder on March 31. (Source: “Tesla Motors Q4 2015 Earnings Call Transcript,” Seeking Alpha, February 11, 2016.)
Note that the pricing of the Model 3 makes it a very special product for the company. Although Tesla has always had a huge fan base, not everyone who wants a Tesla can afford a Model S.
Now, with a starting price of below $30,000 after government incentives for the Model 3, we might be able to see a lot more Teslas on the road. After all, it’s about the same price as a Toyota “Camry” with just a few options.
Right now, the company has only announced one version of the Model 3—the base model. But rumors are saying that there would be at least two loaded models coming in the future.
The “Model 3 366D” would feature dual-motor all-wheel-drive and an extended range of 320 miles priced at $44,000. Also, there will be a performance version, the “Model 3 P366D,” which sprint from zero to 60 miles per hour in 3.1 seconds and will be priced at $60,000. (Source: “Tesla Model 3: Speculating on Batteries, Power, Price, Versions,” Green Car Reports, June 30, 2015.)
The higher-end versions of the Model 3 could bring more revenue and perhaps profit to Tesla. Moreover, if that’s what the Model 3 lineup looks like, BMW and Mercedes should be worried; each model in Tesla’s Model 3 lineup will compete directly with one of the offerings in the “BMW 3” series and the Mercedes “C Class.”
The Bottom Line on TSLA Stock
The truth is that Elon Musk is always thinking several steps ahead. Whether it’s luxury sports electric sedans or mass-market EVs, Tesla has got it covered.
This year could be a crucial year for TSLA stock. With new additions to Tesla’s product lineup, management expects the company will become free cash flow positive in 2016.
One thing is for sure: Tesla is yet to realize its full potential.