Tesla Motors Inc (NASDAQ:TSLA) may be the supreme ruler in luxury electric vehicles, but will that standing last? Barclays analysts believe Bayerische Motoren Werke AG (ETR:BMW) (FRA:BMW) poses a major threat, particularly for Tesla’s planned mass market vehicle.
Tesla leads in tech, BMW leads in weight
In a report dated May 22, 2014, analysts Kristina Church and Brian Johnson, along with their respective teams, weigh the positives and negatives of Tesla Motors Inc (NASDAQ:TSLA) and Bayerische Motoren Werke AG (ETR:BMW) (FRA:BMW). They note that currently, the two companies target similar audiences, although the “vehicle proposition” of each is quite different from the other.
They like Bayerische Motoren Werke AG (ETR:BMW) (FRA:BMW)’s concept because it is entirely different than other electric cars on the market. They say not only is the technology different, but the materials BMW uses are different as well. They also note that BMW is following a distribution strategy that is similar to that of Tesla Motors Inc (NASDAQ:TSLA). For these reasons, they think BMW will be able to “supersede peers.” Specifically, they name the lightweight material the company uses in its cars as being of significant importance.
The Barclays teams also explain what’s different about the two automaker’s technology. They think Tesla Motors Inc (NASDAQ:TSLA) currently has a leg up on Bayerische Motoren Werke AG (ETR:BMW) (FRA:BMW) but that this lead could be fading.
The analysts put together a chart detailing the differences between the Model S and Bayerische Motoren Werke AG (ETR:BMW) (FRA:BMW)’s i-branded cars. They see weight as being a “key differential” for BMW.
Tesla versus BMW: the 3 P’s
The Barclays teams consider three big areas in which Bayerische Motoren Werke AG (ETR:BMW) (FRA:BMW) differs from Tesla Motors Inc (NASDAQ:TSLA). First, BMW already has two electric cars, compared to Tesla’s one. The i3 is more of a city car, while the i8 is a plug-in hybrid sports car. They think the i8 is more of a “showcase car” instead of Tesla’s direct rival. They also think note that the i-brand, which uses carbon-fiber reinforced plastic, compared to Tesla’s conventional car which features an electric powertrain.
In terms of positioning, they think Bayerische Motoren Werke AG (ETR:BMW) (FRA:BMW)’s i3 will appeal to buyers of Tesla Motors Inc (NASDAQ:TSLA)’s Model S, even though it is smaller, has a lower range and is less flashy than the Model S. They especially see it appealing to drivers focused on sustainability because they believe BMW’s manufacturing process appears to be greener than Tesla’s.
In terms of powertrain, Tesla Motors Inc (NASDAQ:TSLA) uses small cell batteries, while Bayerische Motoren Werke AG (ETR:BMW) (FRA:BMW) uses large cell batteries.
Tesla’s brand versus BMW’s i-brand
At this point, Barclays analysts say Bayerische Motoren Werke AG (ETR:BMW) (FRA:BMW)’s i-brand does not deserve the same multiple as Tesla Motors Inc (NASDAQ:TSLA), which is 92 times 2015 estimated earnings. However, they think BMW is “now more deserving of a true ‘luxury’ multiple.” They cite the “smoothing” of the automaker’s product cycles and also its “technological leadership in terms of premium-leading advancement to 2020 emissions targets.”
Currently Bayerische Motoren Werke AG (ETR:BMW) (FRA:BMW) has a luxury multiple of 18 times, but the analysts estimate that the i-brand could increase their current valuation of BMW by €3. Currently they value the German automaker at €116 per share and have an Overweight rating on it.
What will happen to Tesla?
The Barclays team thinks that Bayerische Motoren Werke AG (ETR:BMW) (FRA:BMW)’s i-brand could erode some of Tesla Motors Inc (NASDAQ:TSLA)’s Model S buyers in the near term. Looking into the medium term, they think BMW’s focus on electric vehicles means that competition for Tesla’s Generation III vehicle will be increased. As a result, they say this against indicates that Tesla’s mass market vehicle isn’t guaranteed to be success, particularly when combining the “plateauing” of demand for the Model S in both the U.S. and Norway.
The Barclays teams have reiterated their Equal-Weight rating and $220 per share price target for Tesla Motors Inc (NASDAQ:TSLA).
