Having a CEO who has started a rocket company, wants to colonize Mars, has been compared to both Steve Jobs and Iron Man, promises to literally electrify the car industry and has invented a new form of transport in the form of a Hyper loop, has always made it difficult to analyze Tesla Motors (NASDAQ:TSLA). How much of Tesla's current success is down to the cars, and how much to the charismatic CEO?
Elon Musk's explicit strategy has been to persuade people that buying one of Tesla's cars is more than just about buying an electric car. Instead it's about buying into a vision of how to get to an oil free future with Tesla being the best vehicle (no pun intended) for that endeavor.
This expansive vision has enabled Tesla fans to support the company in several ways:
Firstly, the customer deposits have helped finance development of both the Roadster and the Model S; secondly by buying the actual cars themselves; and thirdly by buying Tesla's stock, which has pushed the stock up to levels even Elon Musk has started to fret about. This in turn has allowed Tesla to raise substantial amounts of equity, enough to build out a network of supercharging stations and start work on Tesla's crossover vehicle, the Model X. Or as Musk put it:
- Build sports car
- Use that money to build an affordable car
- Use that money to build an even more affordable car
- While doing above, also provide zero emission electric power generation options
So the only thing left to do is step 3. - building a car that is affordable to more mainstream buyers, which has been called the Model E or Gen 3. This should be priced not too much above the average price of a new car, which is about $30,000.
How successful will Tesla be in selling such a car to regular car buyers, let alone making such a car? One thing we can be sure of is that Tesla cannot rely on just Tesla enthusiasts to buy the third generation electric car model. This mass volume car must appeal to a much larger universe of people who won't necessarily share Tesla's green values. Cost and convenience will instead be the biggest factors in their car buying decision.
Chevrolet Volt is Gen 3
Fortunately for us, we already have a car which is very similar to what the third generation model is meant to be like, and that's the Chevrolet Volt. Now I know what you're going to say: this is a plug-in electric vehicle, not a fully electric one. However, the Volt fulfils the two main requirements that are expected of the Gen 3 model:
- An affordable car - the Volt only costs $35,000, which is the goal for Tesla's Gen 3 vehicle
- Since it does most of its mileage on short commuting trips where it utilizes its electric mode, the Volt saves pretty much the same amount of carbon dioxide being pumped into the atmosphere as any fully electric vehicle.
Additionally, the Volt:
· Has 380 miles of range, when you include the ICE mode, which is far better than the 200 miles that the Gen 3 is meant to have.
· Can fill up at any gasoline station. This eliminates any range anxiety concerns.
· No detour frustration.
· Does have both electric and IC component costs, but saves cost by not having the massive battery that fully electric vehicles need.
Most importantly, there have been no grandiose visions from GM (NYSE:GM) regarding the Volt; buyers have for the most part been judging GM's car on its own merits. In this instance then, one can safely separate the car from the cult.
Yet if we look at sales, the Volt is terrifically disappointing. Whereas averagely priced light vehicle sales are in the hundreds of thousands per year, the Volt sold only 2000 cars in October and has only sold 18,782 cars through the first 10 months of the year.
Even more startling, Tesla's Model S has sold more than the Volt, at over 20,000 vehicles per year. That's a car which has a starting price of $70,000 and an average selling price of $90,000!
Think about that for a moment: the Volt is an affordable, stylish looking and practical car, a car which should have a lot of appeal to environmentally conscious buyers, and yet is outsold by a car which costs twice as much.
Tesla's currently high stock assumes that Tesla will soon sell affordable priced vehicles in vast volumes. The Chevrolet Volt is similar - though actually even better - to the vehicle Tesla wishes it can create, but the Volt has gone down incredibly badly with consumers.
Based on the evidence of the Chevrolet Volt it would seem that only those who are have invested emotionally in Tesla are likely to buy any future models from them and there simply aren't enough of them to sustain a mass volume business - or the stock price.
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.