Tesla’s (NASDAQ:TSLA) Hype Cycle Over, Deposits Banked, Must Deliver

Tesla’s (NASDAQ:TSLA) Hype Cycle Over, Deposits Banked, Must Deliver

$TSLA, $GM, $F, $VLKAY, $AAPL

The evening of the “debut” Elon Musk ushered 3 Tesla Model 3 prototypes rolled on stage. And there he announced to his rabid fans that Tesla had taken in more than 115,000 reservations that day, each with a $1,000 deposit sight unseen. The crowd went wild, the press ate it up!

In the ensuing weeks reservations have risen to about 400,000 almost 4X the total number of EV’s Tesla has produced over the last 8 years. As the sparkle come off this accomplishment everything has to go exactly right if Tesla is going succeed.

I have asked myself how many deposits would have come in had the deposit been say $2,500 a car instead of $1,000.

It is important to note that the federal subsidies at $7,500 per car end once the company reaches 200,000 in domestic sales. Buyers beware.

The Model 3 is lauded an engineering marvel that is years ahead of its time. Some fans compare it Apple Inc.’s (NASDAQ:AAPL)  iPhone, that is a real stretch.

The Big Q:  How far can you go before having to plug it in again?

The Model 3 offers the cheapest range available for any electric car. This may be one of the most important features of the car, if it is to bring the electric automobile to a mass market. The Tesla data: Vehicle cost per mile of battery range is $163, Range in miles per charge 215, MSRP $35,000+

Battery cost makes up 33% of the price of an EV.

The company has been spending a lot to cut this expense, including building the biggest Lithium-ion battery factory on earth in the US state of Nevada dubbed the “gigafactory” and launching a standalone battery-storage business for homes and small business.

Tesla is now making finished battery packs at or below $220 per kilowatt hour, less than the industry average, according to analysts. If Tesla can shave an additional 30% off its battery cost, it should be able to sell the Model 3 with a 20% gross profit margin including subsidies, not counting for discounts to buyers as sales lag due to technical production and delivery issues.

Charging is a big challenge, as charging stations are few and far between. For now Tesla is a car that one drives close to home, as the most common type of charging station is the owners garage, but only about 60% of garages have such technology in place. So if an owner/driver stays close to home there may not be a problem.

Public charging stations are Key for drivers who spend time on the road for road family trips or business travel. For all drivers it will be the speed of the charge and the number of stations that matters most.

Tesla is focused on building a charging network with fastest chargers. Mr. Musk calls it the Tesla Supercharger, saying can provide 170 miles of driving range in 30 mins, and owners of the Model X and S can use them all without charge if the can locate one timely.

There are much bigger hurdled faces Tesla between now and the EV filled motoring world, and that is follow-through.

1. Tesla has to make all those Model 3s on order, and this is a company that’s known for delays.
2. Every car Mr. Musk announced missed its deadline, the Model X by more than 18 months.
3. Those $1,000 deposits on the Model 3 are fully refundable. I expect that a big number of people will request and later demand deposits be returned.

Tesla can no longer afford delays, below is why, as follows:

1. Tesla has relied on wealthy fans who were not in a rush.
2. Many Model 3 buyers will not want to wait.
3. The backlog of 400,000 reservations could grow before the launch scheduled late in Y 2017.
4. Delays will happen, orders cancelled, deposits returned.
5. General Motors Co.’s Chevy Bolt will beat Tesla to market with an electric car that can drive 200 miles on a charge for less than $40,000. .
6. The big issues for Tesla is that the $7,500 federal subsidy for electric cars, which brings the base Model 3 price to $27,500, is going to expire soon.
7. And BMW and Volkswagen are coming with their entries into the sector, they are the most advanced and well financed automobile manufactures in the world and can finance thier cars  for their buyers. Tesla is none of those or has that.

No question, everything has to come into alignment and go right for the Tesla and the Model 3 to succeed

One automotive analyst puts it this way, “The battery factory must flourish, costs must come down, car-manufacturing capacity must scale at an astonishing rate, and all of it needs to arrive on time.”

Mr. Musk says he can sell 500,000 cars a year by Y 2020 worldwide. He is a know “puffer” so let’s wait and see.

The very high price of the Model S and Model X puts a cap on their  potential market, they are both novelty cars

So, in order for Tesla to meet its Y 2020 forecast, it will need to make up the difference with the rapid deployment of the Model 3. And that means that Tesla need to sell more units than the class-leading BMW 3 Series and with no dealership representation, Tesla is in the factory direct sales business.

Almost every major automaker has an electric-car program that is moving forward.  Ford Motor Co. (NYSE:F) is investing billions of dollars in its EV program.

Not only does competition spell trouble for Tesla, but electric cars have to replace the internal combustion engine, and cheap gasoline that is available almost everywhere.

Earlier this year analysts made some public predictions about how quickly electric automobiles could begin to supplant gasoline-powered cars and upend the Crude Oil markets. It was seen by many, me included, overly optimistic for the electric-car industry to believe that it will happen in the next 50-75 years.

Mr. Musk and Tesla can take credit shining the light on the EV sector’s possibilities, but it will be very difficult for him and his fledgling, federally subsidized company  stay in the game with the world biggest automotive manufactures and marketers.

For the last few years Tesla has been a Wall Street darling…it (and when) it stumbles that “halo” will tilt and fall quickly

Have a terrific weekend.

Paul Ebeling