This past week has been packed with news coming from or concerning Tesla. Judging from Tesla’s dismal stock market performance this week, last Sunday’s Elon Musk announcement that Model 3 passed all regulatory requirements for production two weeks ahead of schedule and SN1 was expected to be completed on July 7, has been obliterated by a flurry of negativity for Tesla’s stock news.
Tesla’s first-half vehicle deliveries were at the low end of its target. The company flagged “a severe production shortfall of 100 kWh battery packs” that affected Q2 deliveries. The Insurance Institute for Highway Safety said on Thursday that Tesla Model S falls short of any award because it earns “only an acceptable rating in the small overlap front test.” A day before that, Sweden’s Volvo Cars said that every car it builds beginning in 2019 will have some sort of electric motor, “marking the historic end of cars that only have an internal combustion engine (ICE) and placing electrification at the core of its future business.”
This is a signal that Tesla would be facing tougher competition from legacy automakers in the years and decades to come.
All of the above developments over the past four days severely hit Tesla’s stock, which dropped by 14.6 percent between Monday and Thursday, entering into bear market territory after falling by 20 percent from its record high achieved just two weeks ago on June 23. This week, Tesla lost its crown as America’s most valuable carmaker, a position it had held since April 10 this year when it overtook General Motors by market value, a week after having surpassed Ford Motor Co.
On June 23, when its shares hit all-time highs, Tesla’s value stood at US$62.99 billion. On June 30, Tesla’s market cap was US$59.40 billion. On July 6, the value had dropped to US$50.73 billion. Meanwhile, GM’s market capitalization on July 6 was US$52.65 billion, regaining its crown.
On Monday, Tesla reported Q2 and H1 vehicle production and delivery numbers, which landed at the low end of its own target. Total vehicle deliveries in the first half of 2017 were approximately 47,100. In its Q1 results release, Tesla kept first-half outlook unchanged at 47,000 to 50,000 deliveries, which would represent between 61 percent and 71 percent annual vehicle delivery growth.
Following Tesla’s delivery update, many Wall Street analysts reiterated their pessimistic views on the company targets and plans, including questioning if the mass-market US$35,000 Model 3 could ramp up production as Musk has promised.
Musk tweeted last Sunday “Handover party for first 30 customer Model 3's on the 28th! Production grows exponentially, so Aug should be 100 cars and Sept above 1500.” He then added “Looks like we can reach 20,000 Model 3 cars per month in Dec.”
Fred Hickey, editor of High Tech Strategist, said, as quoted by CNBC, “Tesla's stock was pushed to ridiculous levels on the notion that the Model 3 would be a slam-dunk success.”
Another analyst, Bernstein’s Toni Sacconaghi, said in a note to clients: “Tesla's Q2 production and deliveries report raised more questions than answers, particularly about Model S and X demand.”
Goldman Sachs’ David Tamberrino is also negative on Tesla, saying that “We remain sell rated on shares of TSLA where we see potential for downside as the Model 3 launch curve undershoots the company's production targets and as 2H17 margins likely disappoint.”
But not all analysts are pessimists about Tesla’s future growth and value proposition. According to Gene Munster of Loup Ventures, Model 3 could change the world.
“Over the next 10 years the Model 3’s value, in combination with its technology, has the potential to change the world and accelerate the adoption of electric and autonomous vehicles…We believe we will eventually look back at the launch of the Model 3 and compare it to the iPhone, which proved to be the catalyst for the shift to mobile computing,” Munster said in a note on Wednesday.
The adoption of EVs poses a material threat to oil demand beyond 2025 according to a Wood Mackenzie analysis from April this year. Although growing markets in China, India, and the Middle East will “put so many new cars on the road that oil use for transport fuel will keep growing, requiring 12% more barrels in 2035 than in 2016,” EV sales are growing exponentially and have exceeded forecasts, driven by faster-than-predicted battery improvements.
“In our current base case, we see the accumulative number of EVs reaching almost 100 million by 2035, taking around one to two million barrels per day of oil demand,” according to WoodMac.
EVs sales would depend on whether the industry could cut high unit costs, and on government policies and incentives. Lower-carbon policies in China and other emerging markets could also boost EVs sales, WoodMac noted.
If Tesla manages to overcome production and quality issues, its Model 3 venture into the mass market could really change the world.
By Tsvetana Paraskova for Oilprice.com
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