With Tesla’s Model X vehicle due to start shipping in the foreseeable future, many market observers are wondering what influence this will have on the economic state of the corporation. It has already been implied by a slide in a recent Tesla presentation that there could be a delay in the release of the Model 3. The Model 3 is intended to be an all-electric vehicle for the mass market, and if this is to be delayed it will place even greater pressure on the performance of the Model X.
For its part, Tesla has denied that there are any issues with the Model 3, and stated that speculation regarding a delay is unfounded. A statement from Tesla indicated that the vehicle remains on course to be revealed for the first time next year, with production to begin later in 2017. But despite the protestations of the company itself, even a gossipy suggestion that the Model 3 could be delayed has intensified the spotlight on the Model X.
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Model X falcon-doors concern
So how well will the Model X fare when it is released? The first thing to note about this vehicle is that its target audience is primarily female according to the manufacturer itself, yet some of the design elements perhaps do not tally with this demographic. For example, the design of the vehicle features falcon-wing doors that open up, not out, which ensures that it is impossible to attach anything significant to the roof. This begs the question of whether consumers will really wish to purchase an SUV or crossover vehicle that cannot carry a significant amount of excess luggage.
With suggestions that the Model X could become a central focus of Tesla, not only this year but in future years as well, there is obviously pressure on the electric car market-leader to deliver a vehicle that ticks as many boxes as possible. Any cracks, or perceptions of cracks, in its mass market appeal could have an extremely detrimental influence on the future of Tesla.
Tesla stock has certainly experienced something of a roller coaster ride in the last 18 months. This was perhaps predictable in the relatively embryonic electric car niche, but ultimately any company likes to experience some form of stability, no matter how dramatic and stratospheric its rise has been. In the case of Tesla, the fact that it has managed to establish itself as a serious player in the auto market is testimony to the achievements of the corporation. This is barely seemed plausible in what is such a competitive marketplace.
Tesla considered overvalued by many
However, despite the successes of the company, Tesla is still considered overvalued by many markets analysts. In fact, Tesla was the most shorted company in the spring of 2014 out of those listed in the NASDAQ. There are two essential reasons for this. Firstly, the rise of Tesla has been precipitated on a prediction that the future of electric cars will be a booming one. This seems logical considering that governments are generally attempting to diminish the importance of fossil fuels on their economic output.
But the oil industry remains an incredibly powerful influence, and the existing economic paradigm has been built up over decades, and will certainly take some time to dismantle. Even a disruptive technology such as electric vehicles, and a genuinely innovative and impressive company such as Tesla, will struggle to make an immediate impression on the way that people choose to live their lives.
Additionally, numerous other established major companies are also moving into the electric car niche. And this means that Tesla’s supremacy is far from assured. Although a possible link with Apple could be good for the corporation and its future, there is also a suggestion that Apple could produce its own electric vehicle, and this would naturally challenge the position of Tesla at the head of the electric car marketplace.
These are all very bearish influences on the Tesla share price, thus the fluctuating nature of Tesla stock is a natural outcome. And Tesla has also been investing significant amounts of its cash reserves. Even one analyst at Morgan Stanley who is bullish on the future of Tesla has described its rate of cash burn as “eye-watering.”
Model X to be cash flow generator
Considering the amount of investment that Tesla has made, and some of the vulnerabilities of the company, it is clear that the Model X vehicle is intended to be a cash flow generator. There is absolutely nothing wrong with this in principle – many companies rely on a leading product in order to generate significant cash flow – but it is possible that Tesla has misplaced its faith in this particular vehicle.
Although the figures for the Model X are certainly impressive at first evaluation, digging a little beneath the surface reveals vulnerabilities. Tesla claims to have roughly 20,000 orders for the Model X, but these are in fact reservations that can be cancelled at any moment with no penalty. Of course, there is no suggestion that there will be a mass wave of cancellations at any point, but if the Model X fails to deliver what people actually want and need, this eventuality is obviously a possibility.
Tesla has been reluctant to reveal the precise specifications of the Model X, and indeed has declined to do so until later this year. So we will not find out precisely what is planned for the Model X until the reservation holders make the final down payments. One can only hope for the future of Tesla that reservers are impressed with what they see at this date, as there will still be the option for cancellations to be made.
The charismatic CEO of Tesla, Elon Musk, remains incredibly confident about the prospect of the company. And the confidence is certainly not misplaced, after all what Tesla has achieved already is certainly impressive. But many auto analysts believe that the design of the Model X is risky, and that it could impact on the success of the vehicle.
There is no concrete evidence to suggest that the Model 3 has been delayed. But as Tesla prepares itself for the release of the Model X, the importance of this already critical vehicle has been brought even more sharply into view. Tesla will hope that some of the reservations of analysts are baseless.