The bears have been deeply concerned about the liquidity crisis at Tesla Motors (NASDAQ:TSLA). The company's second offering, its act of drawing every penny of the DOE's $465 million loan and not meeting the production guidance of 5,000 Model S cars for this year have given the bears enough reasons to be worried about the company's future liquidity position. In this situation, they also seem to be anxious about the company's ability to produce the Model X cars in the future. They believe that there is massive incremental execution risk associated with the Model X launch relative to the Model S. Therefore the question is: Is it really risky for Tesla to produce the Model X cars?
In order to find an answer to this debate, we need to analyze the following aspects:
- the demand for the Model X cars
- the execution risk involved in its production
Before the launch of the Model S car, the bears regarded the electric cars as unconscionable waste. However, the Model S has changed this notion completely. As already mentioned in one of my previous articles on the Model S, the car did not come with any of the usual compromises attached to a conventional electric car. After winning the Motor trend "Car of the year" award, the Model S has proved that it does not belong to the world of conventional electric cars with short ranges, long charge times and poor acceleration. It rather competes with the Porsches and BMWS of the auto world.
Similarly, the Model X has gained the reputation of being the most elegant SUV ever. Its falcon-wing doors have attracted interest from car lovers all across the U.S. Said to run from 0 mph to 60 mph in just 4.4 seconds, the car will be powered by two electric motors sucking power from either a 60- or 80-kWh battery. The 60 kWh-variant produces a range of 230 miles when used in the Model S car. The 80-kWh variant results in a 300 mile range. However, the same batteries are expected to produce lesser range for the Model X given that the SUV has a greater mass than the Model S. The experts in the auto industry believe that it will give a range of 214 and 267 miles for the 60kWh and the 80kWh variant, respectively. Using Tesla's twin on-board chargers, the SUV's battery will get fully charged in just 4 hours.
The Model X has already won over 2,000 reservations - a phenomenal achievement for the company given that its production has not been started and the prototype alone has won that many orders.
Many bears believe that the Model X is expected to cannibalize the sales of the Model S. It is true that after the prototype of the Model X was revealed in California, some of the buyers of the Model S switched from the Model S to the Model X. However, Tesla authorities claim that the Model S saw a boost of 30% following the big event.
JP Morgan (NYSE:JPM) expects the Model X to achieve a 1.9% global segment production share (production of the Model X as a percentage of the production of its competing brands in the world) in 2016. Following is a list of the competitors that the Model X will face in the future:
The Execution Risk
Tesla is expected to produce the Model X in the following quantities:
Tesla is expected to debut the Model X crossover utility vehicle in late 2014, adding additional practicality and body style variety to the company's product lineup. It is interesting to note that the Model X will be built on the platform on which the Model S has been built. According to an estimate, both cars have a 60 percent shared content, which means that it will save Tesla an ample amount of development money. While the vehicle's "falcon wing" doors provide additional manufacturing complexity, I see comparatively little incremental execution risk associated with the Model X launch relative to the Model S, given that they share a common platform and general assembly area.
In my last article on Tesla, I mentioned that the start of the production of the Model X will be an important catalyst for the stock. The Model S and Model X compete in the mid to high-end segment of the luxury market, which I believe represents the "sweet spot" of electric vehicle demand.
After the success of the Model S in the market, the people are desperately waiting for the Model X to hit the roads. Both these cars are expected to bring huge success to the company.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.