Fortune Magazine Senior Editor-at-Large Alex Taylor III has nine big questions for CEO Elon Musk which show off his skepticism, especially about mass market EVs. Barclays analysts also say they’re not sure the company will pull off a mass market vehicle, largely because of questions about battery pricing.
Tesla’s Sales Problems And Supercharger Network
(1) First, Taylor does have a valid point about declining auto sales. The company reported a 14.7 percent decline in sales in May, according to AutoData. This is a bit of a concern since other U.S. automakers posted sales increases in May, but Tesla’s sales model is different than theirs, so it might not be a fair comparison. This is a question that will take months to answer.
(2) Speaking of having a different sales model, he wants to know about whether Tesla Motors Inc (NASDAQ:TSLA) will be able to continue its direct to consumer model because of wide dealer opposition. Again, this is something that will have to shake out over time.
(3) Taylor also questions whether it “makes sense” for Tesla to expand its supercharger network throughout North America. I would say infrastructure is one of the biggest concerns for consumers who would consider buying an electric vehicle, but it really depends on how Tesla goes about this. I think a better question would be whether the company will continue to carry the financial burden of this expansion or whether it can turn a profit on it, perhaps by franchising its superchargers. However, it will probably take quite some time to convince gas station owners, for example, that they will be able to turn a profit by selling food, drinks and other items to travelers who stop for 25 minutes to charge their vehicle.
Other Concerns About Tesla
(4) Musk apparently made a guarantee that the Model S having a higher residual value three years after purchase than other luxury cars on the market. I’d agree that this might not have been the smartest comment from Musk, but maybe he’s got a crystal ball or something.
(5) and (6) These next two questions pretty much go together. Taylor wants to know if Tesla Motors Inc (NASDAQ:TSLA) is really better than other EV automakers, which are all struggling. He also wants to know if the automaker is overreaching, particularly by talking with Google Inc (NASDAQ:GOOG) about adding its autopilot tech to Tesla’s vehicles. Musk has pretty much answered these questions already, and yet, the bears can’t stop finding fault.
The Usual Questions For Tesla
The rest of the nine questions cover most of the same bearish arguments we’ve heard before. (7) Taylor basically wants to know why Tesla Motors Inc (NASDAQ:TSLA) is being traded at such a high price. He asks if Tesla’s stock price is “the result of irrational exuberance.” In my own opinion, I would say the exuberance is right, but I’m not sure how irrational it is. Sometimes you just get excited when a company does something new and fresh and is successful at it. (No, I don’t own any shares of Tesla).
(8) Then there is a question about battery prices in relation to the $40,000 price tag Musk has promised on Tesla’s mass market vehicle. (9) And a question about whether Tesla Motors Inc (NASDAQ:TSLA) can still be profitable without selling pollution credits. Both of these two concerns we’ve also heard numerous times before from almost every Tesla bear, and they will remain a point of controversy between bears and bulls until we see the Gen III vehicle in the flesh, so to speak.
Barclays’ Analysis Of Tesla’s Battery Question
A recent report from analysts Brian A. Johnson, Dan Levy and Steven Hempel at Barclays addresses the battery question directly. They see only a 5 percent probability that Tesla will become a big mass market competitor. They think it’s more likely that Tesla Motors Inc (NASDAQ:TSLA) will remain a niche upper luxury vehicle company, assigning a more than 50 percent chance that the Generation III vehicle will end up being a success, but in the “mass luxury market” rather than the standard mass market, which the company is currently targeting with the Gen III.
The analysts see Tesla Motors Inc (NASDAQ:TSLA) as being in a holding pattern with investors somewhat hesitant to short the stock, although they said they’ve started to get more short interest from their clients lately. They believe a fair value for Tesla Motors Inc (NASDAQ:TSLA) shares is $90 to $100 per share. Of course investors will want to hear on June 20 whether the company has made progress on the 25 percent gross margins it has promised by year’s end.