Tesla: Why Potential Future Competition Matters Now

24 Sep 2015 | Author: | No comments yet »

Apple’s Car: If True, ‘One of the Most Important Moments in Transportation,’ Says Morgan Stanley.

When Tesla introduced its extra-fast Ludicrous Mode for the Model S, it also raised a big question: is that acceleration advantage over the already-quick Insane Mode actually meaningful?Weighing in today on The Journal’s story yesterday that Apple’s (AAPL) going to ship its own car in 2019 are Morgan Stanley analysts Adam Jonas, who follows Tesla Motors (TSLA), and is one of the biggest bulls on its stock (he recently set a $465 price target, as my colleague Ben Levisohn noted), and Katy Huberty, the Morgan analyst who regularly follows Apple, and who is a bull on its stock.It’s not a secret that Tesla’s oft-delayed Model X crossover will finally be in customers’ hands this month, and now we’ve got an event to go along with the launch: next Tuesday, September 29th in Fremont, California — home of Tesla’s factory. We believe the opportunity for tech firms to disrupt the auto industry is large enough to fundamentally and permanently change how investors view transportation… setting off a wholesale reassessment of end market sizing, growth, competitive dynamic, margin potential and valuation […] The addressable market for mobility is on the order of $10 trillion (10 trillion vehicle miles x $1/mile), more than 13% of global GDP.

Look no further than the operating margins of the established auto makers: In the second quarter, Ford Motor posted an operating margin of 6.6%, according to FactSet. DragTimes has posted a drag race between a Model S (using Insane Mode) and a P90D (using Ludicrous) to see how much that added performance really matters. Recently, there have been a couple of authors estimating that Tesla isn’t seeing particularly strong orders, and thus its deliveries estimates for 2015 are clearly at risk.

Early deposit-holders have already been invited by the company to spec out their vehicles on a private site, but that’s been for the limited edition, fully loaded “Signature” model — beyond those early builds, there will be some more variability in how much (or how little) buyers will need to spend. I have been one of those authors, in my article titled “Here’s My Prediction For Tesla’s 2015 Deliveries And More On Model X Foibles,” where I put my 2015 deliveries estimate at 46,500 (at most).

The Model X, with its bigger interior and unique “falcon doors” — is an important model for Tesla, but arguably not the most important one in the company’s pipeline: everyone is looking at the upcoming Model 3 to help bring volume where the pricy Roadster and Model S have not. (The Model X will be just as expensive as the S, keeping it well out of reach of the mass market.) The 3 is expected to hit dealerships in in 2017. You’d expect this kind of lead when it costs at least $5,000 extra to get the Ludicrous setting, but it’s still good to have evidence that you’re getting more than just a spec bump. The authors suggest Apple might have ideas on the “non-productive” time that you spend behind the wheel — a collective 400 billion hours annually by all drivers: “What is the value of 400 billion hours a year? Here’s how things look today: As you can see, an order placed today gets a delivery estimate of “Late November,” or two full months from order to delivery. You’ll get to keep your current user name (as long as it doesn’t contain invalid characters, in which case you’ll have to go through a few extra steps to make the transfer), and all your old comments will eventually (not immediately) migrate with you.

Part of the move has to do with Tesla’s practice of favoring foreign markets at the start of the quarter, and domestic deliveries at the end – so that it can deliver as many cars as possible within the quarter. It means that the public “Late November” delivery dates are more like “Late October” and remain consistent with the thesis that these cars are not flying off the shelves – quite the contrary, demand seems sequentially stagnated, along with Tesla’s delivery guidance for Q3 2015 versus Q2 2015. The data comes from the fact that a few customers have already had access to a restricted site for them to configure their Model Xs for the September 29 delivery date. This compares to 268 EPA miles for a similarly configured P90D (which shares the powertrain with a 259hp motor upfront and a 503hp motor in the back, as well as the battery size).

Indeed, perhaps the whole 70kWh/90kWh battery launch was even partially dictated by that problem as a 60kWh Model X would have seen its range drop below the magical 200 EPA miles. The main conclusion to be drawn here is that the longer delivery dates being seen in Tesla’s order pages are misleading and there’s still no reason to doubt that Tesla will miss even the lower end of its 2015 deliveries guidance.

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