For years now, many have been puzzled and dismayed by the fanatical following of Tesla Motors’ founder and CEO Elon Musk.
The Model 3 on stage at the March 31 unveiling.
Fanatical? His supporters and acolytes numbered at least 250,000 this week, and their numbers are growing. These true-believers happily delivered a $1,000 non-refundable deposit to Tesla for the right to purchase a Model 3 sedan that doesn’t exist and won’t go on sale until at least the end of 2017, if ever.
And Tesla itself? It has a long, long history of missing profitability, production and product launch targets. This from a company whose cars have been problem-plagued and whose revenue growth has slowed dramatically since 2013. Losses over the years have been massive — nearly $1.0 billion last year alone, or more than 10 times the losses of 2013.
Oddly, the balance sheet is often irrelevant to another large group of Musk/Tesla cheerleaders: the investment community, Globe and Mail contributor Chris Umiastowski included. In a glowing endorsement of Tesla – whose shares he owns — the Strategy Lab writer described a 4,000-kilometre family road trip in a Model S using Tesla’s proprietary Supercharger network.
The road trip was “fun,” he noted, though 600 km longer than would have been required in a “regular” car. And as Tesla builds out its global Supercharger network – Musk says it will grow to about 7,200 from about 3,600 today – the road trip inconveniences required to stay on the Tesla network will diminish and ultimately disappear, he added.
Before long, businesses all over will recognize the benefits of having a Tesla charging stand in the parking lot, said
The glass roof and the big touchscreen are Model 3 signature features.
Umiastowski.
“It feels like the early days of WiFi, when hotels and restaurants would install the free service as a perk to attract customers,” he wrote, optimistically.
Aside from the likes of Umiastowski, we have the big investment banks. Credit Suisse and Morgan Stanley are among those whose analysts have positive ratings on Tesla — with price targets as high as $333 or more (as of April 1, TSLA was trading up at $237.59).
Tesla CEO Elon Musk.
It is interesting to cross-reference upbeat analysts’ ratings with share ownership of the investment banks employing those analysts. Morgan Stanley, for instance, owns nearly 4.0 million shares of Tesla; Morgan Stanley analyst Adam Jonas has been extraordinarily bullish about Tesla – issuing a price target as high as $450 in the past year.
The truth is, however, Tesla fans and investors are buying hope and promise, along with Musk’s feel-good, socially conscious hype. His presentation at the unveiling of the Model 3 this week began not with the “what” of the Model 3, but the “why” of Tesla’s very existence. His awkward and unpolished presentation had a kind of “aw, shucks” feel to it – odd, really, given that Musk is a smart, savvy, well-educated, prominent multi-billionaire who has courted media attention for two decades.
Musk on stage with the Model 3.
The essence of the Tesla business story, according to Musk: the need to accelerate the transition to sustainable transportation in light of rising CO2 levels, global warming and tens of thousands of deaths related to auto emissions. Who would argue with the “why” behind Tesla? I am totally on board.
The “what” and the “how” are problematic, however. The Model 3 is the next “what,” a purportedly affordable five-passenger car with a battery range of 320 km, a 0-92 km/hour time of less than 6.0 seconds and a price tag of $35,000. The car will be “very safe,” come standard with Autopilot hardware and owners will be able to use the Supercharger network without any modifications to the car itself.
Musk did not discuss all the many and huge barriers ahead for a successful launch of the Model 3 – or how a small, money-losing operation like Tesla will compete with all the world’s already-established automakers, every one of which is racing to put more EVs on the road this year and in the years to come.
The Nssan Leaf is the best-selling pure EV in history. And you can argue it costs $41 to own and operate over 96 months, or eight years.
The Chevrolet Bolt, for instance, will arrive later this year and while not as handsome as the Model 3 prototype shown this week, it’s a real production car that’s already been test-driven by scores of journalists and others. It will arrive at the end of this year with about the same range as its Tesla rival – the one not due until at least a year after the Bolt’s launch. General Motors says the Bolt will be priced in the low- to mid-$30,000s.
GM is hardly alone. Already, Canadians can shop among eight full battery electric vehicles, including the globally established Nissan Leaf – a 2.0 version of which will have a range of 300 km or more, racier performance than the current Leaf and a price tag in the low-$30,000s or less. The next-generation Leaf is expected on the market long before the Model 3. Nissan has spent billions on its EV program and has no plans to give ground to an upstart like Tesla.
The production version of the 2017 Chevrolet Bolt is no longer a mystery.
The rest of the world’s car companies will deliver a wide range of electrified vehicles in the 18-24 months before even the first Model 3 is scheduled to go on sale. And all of them have the financial capability and the global support and delivery structures (dealers, repair centres) to back their electrified vehicles.
Tesla, on the other hand, continues to burn cash at an alarming rate – with about $1.2 billion left at the end of last year. So to continue, Tesla will need to once again return to the capital markets for at least another $2 billion or more. Will a further dilution of their shares trouble existing investors?
BMW has invested heavily in a long-range strategy to develop lightweight and electrified vehicles such as the i8 supercar.
Tesla’s track record also suggests the Model 3 will not go on sale in late 2017, as promised. We can also expect it to be troubled by all sorts of problems – as have Tesla’s other cars, from the fire-prone Roadster to the finicky Model S.
Most troubling of all is the pricing. Musk said the Model 3 will sell for less than half that of the Model S. Three important considerations:
First, Tesla already loses massive amounts of money selling a Model S that retails for more than twice that of the coming Model 3. How will Tesla turn a profit on a much cheaper car when it is already losing billions selling its current luxury car?
Second, even if the Model 3 is profitable – miraculously – won’t it cannibalize sales of the more expensive Model S? It might not if Tesla does a major makeover of the Model S, separating it significantly from the cheaper Tesla. How will Tesla fund needed updates to the Model S while ramping up the Model 3 and the upcoming Model X?
Finally, if all the stars align and the Model 3 arrives on time, Tesla still faces the massive challenges associated with going from being a specialty niche car company selling 50,000-odd cars a year, to a mass-market producer aiming for annual sales that ramp up to 250,000 and 500,000 in short order. No car company in history has ever successfully managed this staggering feat.
And we haven’t even begun to discuss the challenges Tesla faces with its Gigafactory, the one in Nevada, pictures of which Tesla limited to exteriors at the Model 3 launch. What exactly is going on inside the Gigafactory? Musk says will produce 500,000 lithium ion battery units a year, eventually. No company has ever produced lithium ion batteries on this scale.
Again, even if Tesla pulls off this feat, is lithium ion the proper battery technology going forward? Perhaps vanadium flow batteries are the future, not lith-ion. No one knows and this is one explanation for why battery companies have been so cautious with their technology bets.
In the face of facts, however, the happy mob cheering Tesla and Musk is loud, committed and incredibly defensive. The facts of Tesla and the realities of the auto industry are irrelevant. They see Musk as the electric car messiah, despite a troubling track record of over-promising and under-delivering. He is the charming visionary and Tesla, his creation, will slay the dinosaurs of the existing and well-capitalized, well-established auto industry. To question him is to be a faithless, soul-less, cynical doubter whose intelligence is planted firmly in the 20th century.
The facts, however, say this: Tesla may one day become a successful, profitable EV company and Musk may yet prove to be the second coming of Steve Jobs. I’ll believe when I see it happen, on time and on budget.
Until then, Tesla remains nothing more than an interesting stock play.
For years now, many have been puzzled and dismayed by the fanatical following of Tesla Motors’ founder and CEO Elon Musk.
The Model 3 on stage at the March 31 unveiling.
Fanatical? His supporters and acolytes numbered at least 250,000 this week, and their numbers are growing. These true-believers happily delivered a $1,000 non-refundable deposit to Tesla for the right to purchase a Model 3 sedan that doesn’t exist and won’t go on sale until at least the end of 2017, if ever.
And Tesla itself? It has a long, long history of missing profitability, production and product launch targets. This from a company whose cars have been problem-plagued and whose revenue growth has slowed dramatically since 2013. Losses over the years have been massive — nearly $1.0 billion last year alone, or more than 10 times the losses of 2013.
Oddly, the balance sheet is often irrelevant to another large group of Musk/Tesla cheerleaders: the investment community, Globe and Mail contributor Chris Umiastowski included. In a glowing endorsement of Tesla – whose shares he owns — the Strategy Lab writer described a 4,000-kilometre family road trip in a Model S using Tesla’s proprietary Supercharger network.
The road trip was “fun,” he noted, though 600 km longer than would have been required in a “regular” car. And as Tesla builds out its global Supercharger network – Musk says it will grow to about 7,200 from about 3,600 today – the road trip inconveniences required to stay on the Tesla network will diminish and ultimately disappear, he added.
Before long, businesses all over will recognize the benefits of having a Tesla charging stand in the parking lot, said
The glass roof and the big touchscreen are Model 3 signature features.
Umiastowski.
“It feels like the early days of WiFi, when hotels and restaurants would install the free service as a perk to attract customers,” he wrote, optimistically.
Aside from the likes of Umiastowski, we have the big investment banks. Credit Suisse and Morgan Stanley are among those whose analysts have positive ratings on Tesla — with price targets as high as $333 or more (as of April 1, TSLA was trading up at $237.59).
Tesla CEO Elon Musk.
It is interesting to cross-reference upbeat analysts’ ratings with share ownership of the investment banks employing those analysts. Morgan Stanley, for instance, owns nearly 4.0 million shares of Tesla; Morgan Stanley analyst Adam Jonas has been extraordinarily bullish about Tesla – issuing a price target as high as $450 in the past year.
The truth is, however, Tesla fans and investors are buying hope and promise, along with Musk’s feel-good, socially conscious hype. His presentation at the unveiling of the Model 3 this week began not with the “what” of the Model 3, but the “why” of Tesla’s very existence. His awkward and unpolished presentation had a kind of “aw, shucks” feel to it – odd, really, given that Musk is a smart, savvy, well-educated, prominent multi-billionaire who has courted media attention for two decades.
Musk on stage with the Model 3.
The essence of the Tesla business story, according to Musk: the need to accelerate the transition to sustainable transportation in light of rising CO2 levels, global warming and tens of thousands of deaths related to auto emissions. Who would argue with the “why” behind Tesla? I am totally on board.
The “what” and the “how” are problematic, however. The Model 3 is the next “what,” a purportedly affordable five-passenger car with a battery range of 320 km, a 0-92 km/hour time of less than 6.0 seconds and a price tag of $35,000. The car will be “very safe,” come standard with Autopilot hardware and owners will be able to use the Supercharger network without any modifications to the car itself.
Musk did not discuss all the many and huge barriers ahead for a successful launch of the Model 3 – or how a small, money-losing operation like Tesla will compete with all the world’s already-established automakers, every one of which is racing to put more EVs on the road this year and in the years to come.
The Nssan Leaf is the best-selling pure EV in history. And you can argue it costs $41 to own and operate over 96 months, or eight years.
The Chevrolet Bolt, for instance, will arrive later this year and while not as handsome as the Model 3 prototype shown this week, it’s a real production car that’s already been test-driven by scores of journalists and others. It will arrive at the end of this year with about the same range as its Tesla rival – the one not due until at least a year after the Bolt’s launch. General Motors says the Bolt will be priced in the low- to mid-$30,000s.
GM is hardly alone. Already, Canadians can shop among eight full battery electric vehicles, including the globally established Nissan Leaf – a 2.0 version of which will have a range of 300 km or more, racier performance than the current Leaf and a price tag in the low-$30,000s or less. The next-generation Leaf is expected on the market long before the Model 3. Nissan has spent billions on its EV program and has no plans to give ground to an upstart like Tesla.
The production version of the 2017 Chevrolet Bolt is no longer a mystery.
The rest of the world’s car companies will deliver a wide range of electrified vehicles in the 18-24 months before even the first Model 3 is scheduled to go on sale. And all of them have the financial capability and the global support and delivery structures (dealers, repair centres) to back their electrified vehicles.
Tesla, on the other hand, continues to burn cash at an alarming rate – with about $1.2 billion left at the end of last year. So to continue, Tesla will need to once again return to the capital markets for at least another $2 billion or more. Will a further dilution of their shares trouble existing investors?
BMW has invested heavily in a long-range strategy to develop lightweight and electrified vehicles such as the i8 supercar.
Tesla’s track record also suggests the Model 3 will not go on sale in late 2017, as promised. We can also expect it to be troubled by all sorts of problems – as have Tesla’s other cars, from the fire-prone Roadster to the finicky Model S.
Most troubling of all is the pricing. Musk said the Model 3 will sell for less than half that of the Model S. Three important considerations:
First, Tesla already loses massive amounts of money selling a Model S that retails for more than twice that of the coming Model 3. How will Tesla turn a profit on a much cheaper car when it is already losing billions selling its current luxury car?
Second, even if the Model 3 is profitable – miraculously – won’t it cannibalize sales of the more expensive Model S? It might not if Tesla does a major makeover of the Model S, separating it significantly from the cheaper Tesla. How will Tesla fund needed updates to the Model S while ramping up the Model 3 and the upcoming Model X?
Finally, if all the stars align and the Model 3 arrives on time, Tesla still faces the massive challenges associated with going from being a specialty niche car company selling 50,000-odd cars a year, to a mass-market producer aiming for annual sales that ramp up to 250,000 and 500,000 in short order. No car company in history has ever successfully managed this staggering feat.
And we haven’t even begun to discuss the challenges Tesla faces with its Gigafactory, the one in Nevada, pictures of which Tesla limited to exteriors at the Model 3 launch. What exactly is going on inside the Gigafactory? Musk says will produce 500,000 lithium ion battery units a year, eventually. No company has ever produced lithium ion batteries on this scale.
Again, even if Tesla pulls off this feat, is lithium ion the proper battery technology going forward? Perhaps vanadium flow batteries are the future, not lith-ion. No one knows and this is one explanation for why battery companies have been so cautious with their technology bets.
In the face of facts, however, the happy mob cheering Tesla and Musk is loud, committed and incredibly defensive. The facts of Tesla and the realities of the auto industry are irrelevant. They see Musk as the electric car messiah, despite a troubling track record of over-promising and under-delivering. He is the charming visionary and Tesla, his creation, will slay the dinosaurs of the existing and well-capitalized, well-established auto industry. To question him is to be a faithless, soul-less, cynical doubter whose intelligence is planted firmly in the 20th century.
The facts, however, say this: Tesla may one day become a successful, profitable EV company and Musk may yet prove to be the second coming of Steve Jobs. I’ll believe when I see it happen, on time and on budget.
Until then, Tesla remains nothing more than an interesting stock play.
About the Author / Jeremy Cato
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