Tesla Motors Inc (TSLA)’s Announcement of Model 3 And A Look At Future Prospects


Tesla Motors Inc (NASDAQ:TSLA) is keeping up its promise of unveiling the mass market model car, Model 3, on the last day of the first quarter. Its previous launch, Model X, was also unveiled at the end of the September only. However, the latest model has already generated enough interest since the Model 3 is focused on the mass market, unlike the previous two models that centered on the premium segment. In the same way, the company will also be facing tough competition from its rivals such as General Motors Company (NYSE:GM), which is planning Chevrolet Bolt, an electric vehicle. That apart, it has to meet the competition from the gas-powered luxury vehicles. In any case, the performance of the latest model would hold the key to the future stock movement.

No Changes In Design

Tesla Motors Inc (NASDAQ:TSLA) seems to be using a similar design the latest Model 3 also. That means the new model will have a bigger windshield. Interestingly, rumors suggested that Apple Inc. (NASDAQ:AAPL)’s Apple Car might also have the similar feature though the iPhone maker is yet to confirm that it was working on an autonomous car. However, it has been hiring several experts from the auto industry thus bringing the project to open. In any case, the comparison became necessary since the electric vehicle maker is well-prepared to face the competition from the tech firm on the auto project. It is also important that it acts one step ahead of the rivals to command a premium to its products.

One of the main sells for potential buyers of Tesla Motors Inc (NASDAQ:TSLA)’s Model 3 is the pricing. The company has established itself as a leader and developed several super chargers in the country to take care of after-sales-service too. The electric vehicle maker has priced its Model 3 at $35,000 a vehicle before any incentives. For the company, it is only half the cost of its previous two models, i.e. Model S and Model X. However, the company will face a bigger challenge in the mass market since there other vehicles like gas-enabled luxury vehicles at the entry level apart from General Motors Company (NYSE:GM)’s Chevrolet Bolt. Incidentally, Bolt will be available to customers’ more than 15% discount to its vehicles as the pricing comes at $30,000 before any incentives.

Strong Demand Seen

Tesla Motors Inc (NASDAQ:TSLA) as a brand created magic in the minds of the consumers thanks to its CEO, Elon Musk, who is known for innovation. That is very well reflected in the fans camping out overnight and ready to stand in big queues to place their deposit for a new and affordable electric vehicle that was launched only Thursday evening Pacific time. Reports indicated that the scene only brought back the memory of the period when Apple Inc. (NASDAQ:AAPL) launches its products and crazy consumers thronging the shops. It appears that there was no difference to the company’s Model 3.

If there was pitched tents and camping chairs on Tesla Motors Inc (NASDAQ:TSLA)’s sidewalk stores, due credit should be given to Musk for creating such brand awareness and the quality of the product. The pre-orders from the online are a separate thing. The delivery of the vehicle will take over a year and buyers may be cautioned by the difficulties Tesla has had with the Model X. However, fans of the EV makers were not worried and lined up in big queues to place their pre-orders for the vehicle. That is despite higher pricing over the rivals. It was hard to find any other mass market models of electric vehicle that have generated such a strong response in the recent past. Though General Motors Company (NYSE:GM) was credited for unveiling the electric vehicle concept, it was Musk, who took it to the next level and convinced that there was enough market for EVs.

Concerns About The Timing

Despite the strong response from the consumers, Tesla Motors Inc (NASDAQ:TSLA)’s Model 3 faces tough competition, unlike the previous two models. One of the reasons is the timing of its entry. According to Kelley Blue Book Senior Analyst, Karl Brauer, it was a concern because the company would be making available the Model 3 vehicles a year after General Motors Company (NYSE:GM) allows its Chevrolet Bolt to enter the market. He also sees more rivals coming up with a similar range of pure electric vehicles before the end of the next year. He expects the rivals to have complete sales, as well as, service support in place in every big market. That is a big pressure on the EV maker to keep expanding its market with the mass market model launch.

Until now, there is a tremendous hope about Tesla Motors Inc (NASDAQ:TSLA) establishing and selling a big number of Model 3 vehicles. It was because of this reason; its market cap has also got a big boost, i.e. five times to the annual revenue. There are also other key issues that hold the key to its success. For instance, the company should come out with the product as originally planned by late 2017. The past suggested that it could not honor its commitment. Similarly, the production issue has been in vogue in the last few years. Though it kept production targets impressively at the beginning of the year, it struggles to maintain it and finally slashes it. If it has to make a profitable one, then the battery costs should also be lower enough.

Shares Upgraded

In March alone, two brokerages have not only upgraded the rating but also boosted the price tag by one of them. Argus has upgraded Tesla Motors Inc (NASDAQ:TSLA) shares to a Buy rating from Hold and retained a price target of $333. On the other hand, Robert W Baird boosted its rating to an Outperform from Neutral rating on the company’s shares. The brokerage also boosted its price objective to $300 from $230. However, S&P Global Market Intelligence analyst, Efraim Levy, advised the investors to Sell since the stock is trading below his price target of $155.

Conclusion

One thing is clear. Tesla Motors Inc (NASDAQ:TSLA)’s future depends much on Model 3 because of its focus on the mass market. While it might have an edge over others in terms of quality, it remains to be seen whether the company can overcome the supply constraints, which was witnessed in the earlier models. Premium models are something different from the mass market models. Therefore, there is a threat of losing buyers if it faces supply issues or delay the delivery of the EVs.

Disclaimer: The opinions and data expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisory capacity, nor is this an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the company or companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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