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Tesla’s “Other” Biggest Risk

Courtesy of ZeroHedge. View original post here.

With Tesla set to report results after the close, most investors will be focusing on two key risk factors: i) the often-delayed production Model 3 production ramp, and ii) the company’s cash burn, which in Q3 of 2017 hit an all time high of $1.4 billion.  And whereas in the past, Elon Musk could easily slide between these two concerns, his recent erratic behavior coupled with growing rumblings that there may be terminal complications involving the company’s “make or break” Model 3 rollout, has resulted in an increasing sensitivity to both the details of the Model 3 production ramp, as well as to the company’s trademark gargantuan cash burn.

But while these two problems are well known, and mostly priced in, a recent Barclays report (which as the firm joked was a little too long for its US and tech clients at 89 pages), noted a third, less appreciated concern: with every quarter of delays, the competition is catching up.

Recall Barclays’ own “tweetsized” summary of its report in just 5 bullet points, all of which scream one thing: the (German) competition is coming as Tesla delays:

  1. Hey @elonmusk: German OEMs & other dinos you have mocked will be rolling out exciting new BEVs — 6 new models in ’18, & 13 in’ 19
  2. Production hell, nein; Industrie 4.0, ja: German mfg is state of the art now & gets better w/ a harmonious blend of humans + robots, AI, IoT
  3. TSLA went a robot too far? Despite the quest for an “Alien Dreadnought” @elonmusk admitted that automation needs to be dialed back, is that good for gross margins?
  4. Showdown on scale: German OEMs will leverage scale economies either thru large native EV platforms (VW) or modular approaches (BMW)
  5. With solid & profitable EVs coming while TSLA struggles, legacy OEMs deserve

And yes, Barclays is rather bearish on Tesla as a result. This is what it said two weeks ago:

“We give credit for the leadership tesla has displayed in accelerating global EV uptake, and indeed we acknowledge that at this time the model 3 is clearly the most attractive EV option at its price point. However, we continue to remain bearish on Tesla, with an UW rating and $210 price target, as we believe investors have not adequately appreciated the myriad risks involved in Tesla’s aggressive ramp. Margins are likely to remain compressed, while cash burn remains an issue. And while there may be some merit to the simplicity of the Model 3 structure and to Tesla’s lead in battery cost, any such advantages over legacy OEMs are likely more than offset by the legacy OEMs’ cost advantages in scale and other efficiencies.”

To be sure, there was much more in the full report, but for the sake of prompt decision-making ahead of earnings, here is the punchline: a breakdown of the rapidly approaching competition, simplified in a few charts and tables.

First, the tipping point for EV from the standpoint of battery pricing:

This means that some competitors are already more cost-efficient:

Still, Tesla has a large sales lead over its peers… for now.

Meanwhile, the Chinese market is “much more diverse” and advanced, and dominated by locals:

China and non-China EVs in context:

China aside, the market is about to be flooded with OEM EVs:

What BEV products are hitting the market imminently?

The competition is heating up for TSLA and we see that competition is accelerating in the coming years.  Importantly, we are now seeing some of the concept cars of the past coming to showrooms. While we concede that the Model 3 doesn’t face competition yet in the ~$50k fully loaded segment (which is smaller than the $35k segment), competitors are coming in both at the model S⁄X ~$80-100k price point, and also at the more affordable EV price point. Just in the US and Europe (never mind the profusion of Chinese EVs) key scheduled launches include:

Upper end

  • Jaguar IPace (on sale 2q18 in europe, 3q18 in us)
  • Audi eTron (on sale 2h18 in europe then us)
  • Porsche Mission e (2q19)
  • Mercedes EQC (late 2019)
  • BMW iX3 (early 2020)

Middle⁄lower end

  • Chevy Bolt (on sale now)
  • Nissan Leaf (on sale now)
  • Hyundai IONQ EV (2018)
  • Hyundai Kona EV SUV (summer 2018 in europe, 4q18 in us)
  • GM Buick variant of bolt
  • VW ID Neo (2020)

A comparison of upcoming BEV product offerings

And the pipeline of EV offerings over the next 2 years.


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