Tesla Motors Inc (NASDAQ:TSLA) has all of its eggs in one basket, and that is the riskiest thing about the company’s stock. Despite the ridiculous valuation and the production issues facing the company, the biggest risk it faces is something happening to the brand of its only car model. The Tesla Model S is a great car, but it’s as vulnerable to smears as anything else.
Tesla Motors Inc (NASDAQ:TSLA) is not going to release another electric car until at least next year. A fire in the Model S earlier this week, which did not cause the drop in the value of the stock, was an important incident because it demonstrated a massive problem at the electric car company. Tesla Motors Inc (NASDAQ:TSLA) likes simplicity for customers. It hates diversity and that may hurt the company.
Tesla’s lack of diversity
Tesla Motors Inc (NASDAQ:TSLA) is almost always in the headlines for trying to sell cars directly to consumers throughout the United States. The company wants to offer the simplest choice to consumers in order to keep its margins stable and make customers know how much a Tesla Model S costs. Simplicity is a positive for Tesla Motors Inc (NASDAQ:TSLA), but according to a new Stifel report it’s a big risk to take.
The report, which was authored by Stifel analysts James J. Albertine and Lucy Webster, highlights the risks inherent in offering only one model of car. Other car companies can fall back on “all-back” on profit-generating internal combustion technology.” Tesla Motors Inc (NASDAQ:TSLA) cannot do that if the company only offers a single vehicle.
Investors are constantly trying to diversify their portfolios, and companies try to diversify their product. There is always the chance of being wrong or of the general environment changing. Tesla wasn’t wrong about the popularity of a good electric car, but the environment might change and the company has little control over that.
Tesla brand problems
The fire video that emerged this week is not a big problem for Tesla Motors Inc (NASDAQ:TSLA), but it absolutely highlights the problems the company could face if the Model S brand falls in value some time in the future.
Tesla Motors Inc (NASDAQ:TSLA) will not diversify until next year at the very least. The Model X will be based on the same chassis as the Model S, meaning that diversification is off the cards yet again. The Model E, or third generation car, will not arrive for until 2016 at the earliest.
The biggest risk facing Tesla Motors Inc (NASDAQ:TSLA) may be the company’s eggs in one basket attitude. The company is going to stick to that plan for years, and it has nothing to fall back on. The appetite for electric cars could change for many reasons and any big change could kill Tesla Motor Inc (NASDAQ:TSLA).
This week’s drop in value is not a disaster for Tesla, and the Model S fire will not kill the company. The firm’s lack of diversity heightens risk, however, and could ruin shareholder value in the long term.