Analyst Bullish Long Term For Tesla, But Has Several Model 3-Related Short Term Concerns

3 months ago by Eric Loveday 20

Tesla Emblem On Model S

A new Tesla Motors’ analyst is now on the scene…

Bernstein has now initiated coverage on Tesla Motors.

Bernstein’s analyst is overall bullish on Tesla long term, but has a few short term concerns, leaving the company with a “market perform” status until they work through the next few months.

In a note to investors titled “Burning Rubber and Burning Cash: The Future Can’t Come Soon Enough,” the analyst writes:

“We believe that Tesla has three key advantages: (1) a lead in battery technology cost; (2) unparalleled consumer awareness and brand; & (3) vertical integration that is not only brand reinforcing, but creates material cost savings in distribution – collectively these advantages could translate into an 800 bps+ profitability advantage long term vs. traditional OEMs.”

“While we are bullish about Tesla’s long-term potential, we have several near term concerns, most notably (1) gross margins, as Model 3 and its associated capex ramps up, and (2) Tesla’s overall customer experience – which we believe is not strong today – and could be further pressured as the company migrates to selling to a more mass-market consumer. A poor ramp and customer experience on Model 3 could not only impact Tesla’s near-term financials, but undermine the franchise longer-term.”

Bernstein addresses the overall EV market too, stating:

“The traditional automotive market is being disrupted, and the source of it is one upstart player – Tesla.

We have seen this pattern play out before (with AAPL, NFLX, AMZN), where a single company triggers a sea-change in outlook among consumers and, eventually, among traditional incumbents, who further validate the shift.

In part due to Tesla’s catalyzing role, we are bullish on adoption of EVs. Our experience is that consumer technology disruptions occur much more quickly than is typically expected. We believe that EVs could be 40% of the auto market in 20 years and over 50% by 2050.”

Source: Street Insider

Tags: , ,

20 responses to "Analyst Bullish Long Term For Tesla, But Has Several Model 3-Related Short Term Concerns"

  1. ffbj says:

    20 years from now I not even sure there will be manufacturers making ice cars.

    1. Alaa says:

      I agree with you. I also think that BernStein is trying to appease the oil boys with the time line they mentioned.

  2. Jim Whitehead says:

    Bernstein missed some obvious Tesla advantages:

    1. Tesla has the most advanced autopilot in the world. (For many like me, that is a big reason to buy Tesla, to relieve the stress of driving in traffic).

    2. Did Bernstein forget that Tesla is the only production car with over-the-air updates? Staying current with updates helps their resale values, which are among the top in the world for new cars.

    3. Since Tesla is the only company who owns a Gigafactory, so they can drive down battery costs faster than others.

    4. Last but not least: One stop energy shopping. They are the only car maker where you can buy solar and battery storage to power your new EVs. The other automakers haven’t yet understood the huge advantage of this.

    1. Vexar says:

      What’s stopping you from becoming an analyst? I don’t think they are specifically credentialed. I think they just blog.

    2. Dave K says:

      I’ll add one more, people are sick of traditional OEMs and their dealer(stealer) networks. The direct sale/no BS/OEM service model is an idea who’s time has come.

    3. AJ says:

      Over the air updates is a feature most automakers can figure out pretty quickly. But what is and will remain Tesla’s advantage is its silicon valley roots. Knowing what technological path to take next and thinking up how tech will change the way we commute will be tesla’s greatest advantage. What new features you push over-the-air will be more important than having the ability to push over the air. Just the way I see it.

      1. Jason says:

        I agree. Even without OTA updates, I have a Nissan Leaf and the lack of any meaningful updates is pretty disappointing and shows how Tesla gets this and Nissan doesn’t. Maybe Leaf doesn’t have the CPU or memory to do much, but given it has a 3G modem and can talk to the smart phone, I’m surprised they haven’t even implemented a find my car feature (at least none I can find or is advertised). I imagine this is one of the first things Tesla implemented, and it would be great for parking situations or if the car was stolen.

        Tesla being a tech company is something that sets them apart from ICE manufacturers.

    4. Doggydogworld says:

      1. Tesla AP2 is laughably behind Waymo. Tesla does have the only AP you can (kind of) buy today. I’m not sure if that’s a major or minor advantage.

      2. Chevy Bolt has OTA.

      3. Basically his first point.

      4. We’ll see. There’s a reason all major residential solar companies went BK or had to be rescued.

      1. Jason says:

        Sorry, how many vehicles are on the road with AP type functionality? I didn’t realise there were many vehicles with the sensor suite required to do any sort of AP. Mostly I’ve seen ACC, lane departure, and cross traffic, but nothing as sophisticated as AP.
        It is a very bold, forward looking, move by Tesla to include these sensors on every single car. Could you imagine any other manufacturer doing this across their entire model range? You’d think they were crazy, but instead we think Tesla are awesome.

  3. AlphaEdge says:

    1. Rated by who? No way of knowing that.

    3. There are others building huge factory/factories. Tesla might not even be the biggest by 2020.

  4. Pushmi-Pullyu says:

    “Bernstein’s analyst is overall bullish on Tesla long term, but has a few short term concerns…”

    Well, duh.

    But perhaps I’m being insufficiently complimentary to an analyst who does at least grasp the fundamentals of how well Tesla Inc., the company — and not TSLA, the stock — is performing.

    That at least gives him a leg up over far too many other self-described “analysts”.

    “We believe that EVs could be 40% of the auto market in 20 years and over 50% by 2050.”

    Assuming the EV revolution follows the same “S-curve” of adoption shown by previous disruptive tech revolutions, if EVs have 40% of the marketplace by 2037, then 13 years later (2050) they’ll certainly have significantly more than 50%!

    But both figures seem rather timid. If sales of plug-in EVs go into sustained exponential growth within, say, 5 years from today, then they should have 50% of the market before 2037.

    1. georgeS says:

      PMPU,
      I agree. I read the title and I thought who cares just another opinion but it seemed pretty spot on after I read it.

    2. arne-nl says:

      Agree on the long term EV outlook. I see roughly a doubling of the market every 2 years. That takes 5.5 doublings from the ~1% last year to ~40% in 2027. After that the S-curve will start to kick in very soon and growth will flatten somewhat.

      What many underestimate is mass psychology. At some point, EV adoption will stop depending on the specifications: range, price, charge times, performance, etc. Nobody wants to buy yesterday’s tech, and that’s what ICE cars will become very quickly after 2020. People WILL buy an EV, no matter what.

      Let’s hope auto manufacturers keep building those gigafactories to satisfy demand.

      1. Pushmi-Pullyu says:

        You’re absolutely correct to point out that part of the reason for exponential growth during a disruptive tech revolution is that the new tech comes to be seen as more desirable than the old. That is, there is a snowballing effect in public perception which occurs much faster than the advance in technology.

        That hasn’t happened yet with EVs. I’m not sure even the Tesla Model 3 will cross that threshold. But I think it’s inevitable that it will happen eventually, altho it may take one or two breakthroughs in battery tech before it happens. (Others disagree, but I really think we need battery packs which can be routinely charged in 5-10 minutes.)

    3. MaartenV-nl says:

      S-curves are strange beasts. The S-curve is not something that will come along in a few years. The S-curve of the ICE to BE transition started a few years ago. It is probably best to take the launch of the Tesla roadster as its starting point.

      Some parts of the S-curve look like a linear growth progression and other parts look like an exponential growth path. That is because the exponent is not a constant. The exponent changes over time from very small in the beginning and end to big for a short time in the middle.
      Think of the exponent following the value described by the normal distribution or bell curve. When we draw the bell curve, we only draw the middle part of it. But it extends to both sides a long way. For most of the time on the left of the bell-curve the value is so small that the S-curve seems to be glued to the 0%-line, and after the top of the bell the rest of the values are again so small that it takes eternity to reach 100%.

      The interesting questions are:
      1. When does the S-curve start to rise in earnest.
      2. How long does it take to cross ~90% mark.

      As tesla discovered with the disappointing sales of the Model S 40 and Nissan and Renault learned with the dismal sales of the Leaf and the Zoe, the minimum capacity or range for an BEV is about 60kWh or 200miles EPA. It is this year that for the first time BEVs with an acceptable battery for an acceptable price come to market with the GM-Bolt, Model 3, Zoe40 and Leaf II. In 2018 and 2019 some others will follow.

      My guess is that the S-curve will start to rise this year, really visible for most people next year. And after that a period of 10 years to reach market demand dominance is long. It will be constrained by production capacity most of that time, making the S-curve flatter than it could have been without those physical constraints. Because it takes time to build the mines and factories needed.

      On the internet there are tools to play with S-curves. If you experiment with them, like I did, you will see that 20 years to cross 60% or70% or 80% or even 90% is highly unlikely. Policy makers and industry leaders who are expecting less than 75% in 10 years are not prepared for the future. Not even Trump can frustrate progress that much.

      1. BenG says:

        You make a number of good points, but 75% penetration of plug-ins in 10 years?

        Highly doubtful, especially with Trump pushing fossil fuel the next 4 years.

        I don’t see the driver of that kind of growth coming soon.

        We’re only now seeing cars being delivered that approach a no-sacrifice BEV: the new Model S 100D with 337 mile range and a nationwide network of superchargers. But that is $100k.

        The Bolt isn’t suitable for long distance, and costs $30,000 even after rebate compared to $25,000 for somewhat comparable hot hatches like the Golf GTI.

        For true mass market we need a car like the Bolt but with 300 mile range and a nationwide fast charge network to sell for $25,000. Or a non-performance version for $18,000.

        Will that even happen in 10 years? If it were available would it somehow seize huge market share despite the issues many people will still have personal or local charging infrastructure?

        I think the physical constraints including the need for national fast charging infrastructure and the relatively slow change of commercial battery performance, these things will keep the industry’s growth curve from ‘going vertical’ within 10 years.

        I hope I’m wrong. That would be awesome to see it take over so fast.

        1. Bojan says:

          If you take fuel costs into account, the Bolt is cheaper than comparable hot hatches.

          1. BenG says:

            Maybe so, depending on the time frame and depreciation. We don’t really know what the depreciation and operating + maintenance costs of the Bolt will be over time. Sure, the electricity will be cheaper than gas, but $5,000 is a lot to pay up front, then if depreciation hits these cars like it did the Leaf you may never catch up. But that’s the price you may pay for being an early adopter.

        2. MaartenV-nl says:

          The S-curve creates its own dynamic. And don’t look too much to the USA, this is a global market phenomenon.

          GM and Nissan and Renault did not squander their lead by doing nothing after their initial 2011 entry in the EV market. They have patiently waited for the battery prices to drop to a level that they can offer a ~60kWh BEV. They can not really compete on sticker price yet, but they get close enough to grow their market share. And the battery prices keep dropping the next two decades. Sticker price parity is coming.

          In another couple of years (2019-2022) they will be joined by Peugeot and its clones Citroen and Opel, Hyundai (and Kia), Volkswagen (and Skoda, Seat, Audi) and Ford with offerings that are sticker price competitive with their own ICE offerings (like the VW Golf and VW Passat or Ford Focus) and have the desired range to be an all-round usable car.

          The mistake of GM-USA marketing to offer a BEV without standard DC charging won’t be repeated. GM-Canada offers the Bolt only with DC-charging included.

          At least in Western-Europe the DC charging problem is solved. The building of DCSC networks like Tesla’s network is started and at 2020 there will be enough (300-500-???) charging stations with 150kW-350kW chargers along the main corridors. Putting a few million level2 (7kW-22kW) chargers along the curb where people park their cars, sounds like a lot of work.

          But after getting the infrastructure of utilities, grid operators, regulatory bodies, charging equipment manufacturers and charging providers in place it is just a question of market pressure, money and execution. This can be a problem in the USA, but Europe, India and East Asia are too eager and they look ready.

          In Western Europe, the car industry is mainly using the build to order sales model like Tesla. A waiting period between order and delivery of two month is normal. For popular models this can be longer. I won’t be surprised to see waiting times longer than a year for popular BEV in the early ’20s.

          I am not saying this will happen, but all the pieces are in place to make this possible. And a climbing S-curve with the accompanying hype, inner cities closing to ICE vehicles and a growing legion of former BEV drivers who will never go back to ICE could create the atmosphere in which this happens.

          (Pfffft, looks like I’m writing articles instead of comments)

  5. At least he tries not to bash Tesla like all the other so called “analysts” prefer to do. Anything else may be just a lack of information.

Leave a Reply