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Unusually interesting article challenging the value of Tesla cars, their business model, etc...

Yesterday there was an interesting article from "Seeking Alpha":

"Can Tesla Reach 500,000 In Vehicle Sales Or Is Dougherty & Co. Overly Optimistic?". This is one of the first articles to appear on the stock app for the iphone under the symbol TSLA (for Tesla). The article Challenges the inherent value of Tesla cars, the company's business model, their contribution, and their prospects. It's interesting because it includes a large amount of information. I tried posting the following comment in that article several times since yesterday (screen name Plutarc):

"The flaws in this article’s assumptions:

1- People with $30,000 to $50,000 to spend on a car would ever spend it on an electric vehicle with a range of less than a hundred miles - now or in the future. That is what Tesla competitors are offering. You buy a car because it’s fully functional, at any price point. In other words, aside of Tesla, what is out there now, and in your charts, for other campanies’ electric cars is a waste of resources and space. Their dismal sales numbers, also in your charts, reflect this. Tesla customers are in line for months, with money up front, for a reason.

2- That other companies “will catch up with Tesla”. Tesla’s technology is leaps and bounds ahead. You seriously think that Tesla’s platforms won’t keep getting better and cheaper at a faster rate, from their current , vastly superior starting point? What do you think they’ve been about the last 20 years? Why do you think the other auto makers are desperately introducing grossly subpar electric vehicle products which, by measure of their inadequacy, have terrible sales?

3- It’s been known for a while that the profit margins for Tesla are no longer relying on the government credits, yet they are exceeding their profit margin target by all reports.

4- Has anyone heard of a hydrogen or natural gas car? Isn’t that a much blurrier logic to base projections? That would be explosive...

5- There is no reason to believe Tesla’s new models will be delayed. There’s a waiting line, for months, with money upfront.

6- The model S is a large luxury sedan. It is priced at the same level as it’s gasoline/hybrid competitors. It beat them, in every way, the first year it came out! Tesla sales accounted for the entire growth in the luxury car segment- about 9% as of July 1st . They achieved this in year one!!!! Like you said, the brands at the level of the models S are well known with established reputations. Where is their reputation in delivering an electric car for the emerging new auto industry? A Tesla Gen III will be priced and sized for equally appropriate comparisons. Do you think people like to pay 10-15% more to go to what is widely regarded as a painful dealership experience? Regardless of how you buy Tesla cars, the comparisons remain the same.

7- Hybrid sales. Hybrids are polluters. People don’t like to pollute any more. That is a global, unmet, demand.

Gasoline vehicles (including hybrids) will lose their value as electric vehicles come out. They already depreciate quickly. How much quicker do you think they will depreciate as the electric vehicle market grows. Who likes to own an asset with an accelerating depreciation?

8 - Tesla was smart enough to integrate the technology for their vehicles into owning the infrastructure that provides their energy and the clean energy that powers buildings. Their technology sells in multiple directions, not just in their cars.

What were the projections for Tesla in the past? How did it measure up to them? Answer: it exceeded them in every way, captured the best in all of us, and gave unprecedented hope for preserving/restoring the environment. With that in mind, a clearer set of projections, reflecting an unprecedented growth trajectory, emerges.

It’s time to make way for this bright new star!"

The comment has not posted. I encourage you to read the article. It is informative, but, in my opinion, grossly off base about its projections for Tesla.
We all know that all sorts of misleading articles have come out since the introduction of the model S. That is a major reason why supporters of Tesla have become vocal.
It's about a great company, that is great for the world, having its fair chance to succeed.
,

See if I can get the link to work

http://seekingalpha.com/article/1590922

Dougherty believes Tesla will continue to maintain its technology lead and believes it will hit the Gen 3 target. If it does both ownership will absolutely explode.

The article questioned whether Tesla could own 25% of the EV market. The answer is emphatically ***YES AND MUCH MORE***. Just look at the hybrid market, which is essentially the fuel-efficient gasoline-vehicle market, and look at Toyota's share. It's MUCH higher than 25%. It's over 50%. Why? Because they have the most fuel efficient vehicles at competitive prices in a section of the market that demands good fuel economy. When a company has a lead in a focused market they dominate. Why has it shrunk recently? Because competitors produced vehicles that were both competitive with Toyota hybrids and broadened the hybrid appeal. Toyota has lost sales to Ford and the market has expanded.

If Tesla can build a long-range BEV at prices no other manufacturer can match then because it will by then have a national fast-charging network it will OWN that part of the market. If the BEV is relatively cheap they will OWN the whole EV market AND expand it. At that point Tesla can sell the drivetrain in volume and, because of their design, the drivetrain can be manufactured in high volume relatively easily and business can become much simpler by being less about the cars.

I've heard it said that you can do just as well in the market by throwing darts as by following the advice of pundits. Articles like that make me even more sure it's true. I bet more money is made by "experts" selling their advice in newsletters or selling ads on their web sites than those "experts" make by investing. Just a wild guess :-)

Lion;
The darts method has the same basis for effectiveness as the dollar-averaging method: It disconnects you from opinion and rumor, and occasionally picks up a really hot outlier stock or event that no one predicted.

Less like dollar cost averaging and more like buying ETF's I would think.

I think the reason Tesla market cap could reach almost any number (as well as go to zero - there is a un-negligible chance they could go bankrupt in a unpleasant turn of events). I think any market evaluation that tries to analyze things from a return on investment standpoint are flawed since they ignore the emotional / ideological drive for many Tesla investors. This could never be parsed out and particularly not for a company that has a goal of saving the world.

With that said, there is a kind of hyped up 'what could possibly go wrong' mindset for many Tesla fans. I think its lazy and not good for Tesla either. There will be bumps along the way. Look at previous serious attempts to electrify transportation, particularly Better Place, and to some extent the Nissan Leaf.

Particularly, how did it become accepted as axiom that they will hit all margin targets?
I'd count that as extremely unlikely. And of course they will be affected from competition at some point, which is a good thing IMO, because it will mean they are successful.

People who bet against Musk so far have had their heads handed to them in one hand, and their butts in the other. And are uncertain which to replace where.

LOL :-)

I am SO stealing that Brian. It's perfect :D

Tesla fans too often forget that competitors have much more resources and in some cases could make something better than Tesla... Just look at 43kW Chameleon Charger from Renault Zoe. I doubt it costs more to manufacture than Tesla TwinCharger and yet it has more than twice the power.

I am still Tesla fan, but please, don't underestimate competitors, that could be fatal.

One key competitive advantage that I see Tesla has is that it doesn't have conflict of interest with ICE lines, while all other manufacturers need to consider potential cannibalization of their existing profitable models.

Many of Steve Jobs inspirations came from Xerox inventions that Xerox didn't bring to fruition. The cultural differences between dynamic new companies headed by tech-savvy visionaries and big autos whose top managements dominated by sales and marketing folks who worry about unions contracts and pension payments will give Tesla an upper hand for years if not decades.

I suspect the Zoe rig benefited from the Euro 240V feed. Not sure.

Here is the percentage of the US market some good research says Tesla will have in 2014. Right behind Alfa and ahead of these other brands. Just for fun.

Alfa Romeo..(.12
Tesla………..(.08
Smart……….(.06
Maserati…...(.03
Bentley……..(.02
Ferrari……...(.01
AstonMartin(.01
McLaren…...(.004
Lambo……..(.004
Rolls………..(.003
Lotus……….(.002


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