Tesla Inc (NASDAQ:TSLA) stock has been faring poorly in recent weeks. The reason for the firm’s problem is not likely a fundamental issue. Instead it seems that traders are reevaluating the future of the company. That’s no surprise as firm’s like Volkswagen promise to compete roughly with Elon Musk’s firm. The fact that bullish valuation was based on EV dominance likely isn’t a help either.
That situation may have worsened on Friday morning as as the German car giant revealed plans to undercut the Tesla Model 3 at launch. At a recent auto show Thomas Sedran, head of global strategy at Volkswagen AG (FRA:VW), said that the firm’s big release would cost $7,000 or $8,000 less than the Tesla.
The firm is aiming for a maximum price of around €30,000. The news was first reported on German language website automobil-production.de.
Elon Musk has some breathing room before that comes to pass, however. The Volkswagen I.D. range is not slated for release until at least 2019.
Model 3 meets the Volkswagen I.D.
The Volkswagen I.D. was unveiled at the Paris Motor Show back in September 2016. In recent days more details about the firm’s plans for the mass market EV have become apparent. Mr. Sedran has done some talking to the press, and he has made some bold claims about the future of Volkswagen.
The I.D. range will actually consist of a number of different models according to a recent leak from a dealers meeting reported by Car and Driver. The first release will be a smaller, mass market EV. Volkswagen AG (FRA:VW) will follow up that release with a bus, called the I.D. Buzz, and a crossover called the I.D. Cross.
Two more variants, the Lounge and the AEROe, are set to be released in the US, but no details of those cars has yet emerged. The rollout of these cars is set to begin in 2019.
Volkswagen promised in September of last year that the I.D. would have a massive range advantage. The firm says that its small EV will have a range of between 250 and 370 miles. If the firm can get anywhere near the higher number and come in below the €30,000 price level, it may have a Tesla Model 3 beater on its hands.
There are drawbacks. Judging by the concepts, the I.D. will be much smaller than the Model 3. It’s also less likely to have the advanced features that Tesla can boast of.
Does Tesla have a monopoly?
Tesla has seen its stock price climb and climb in recent months as more and more of Wall Street bought into the idea that there is no real competition in the EV market. For the time being that appears to be true. The last big release dubbed a Model 3 competitor was something of a flop.
There’s nothing wrong with the Chevy Bolt. It appears to be a well made, well specified electric car. The problem is that General Motors Company isn’t serious about EVs, and it’s not building out enough production to actually compete with Tesla Inc (NASDAQ:TSLA) .
Berenberg Bank analyst Alexander Haissl, in a June report on Tesla stock, said that the firm has a near-monopolistic opportunity in the EV space due to the complacency of the other carmakers. In his view the slow rollout of competitive EVs gives the firm an advantage that isn’t likely to be beaten.
That’s what makes the Volkswagen I.D. so much more interesting. The firm’s EV lurch is, explicitly, related to its emissions scandals. In order to clean its name, the firm is trying to clean what comes out of its tailpipes. That is reason enough to take the firm more seriously than other competitors.
Tesla is, however, still far ahead of Volkswagen AG (FRA:VW). It’s going to start to send the first Model 3 to customers this month or next. There’s a lot that can change in a couple of years, and the Volkswagen I.D. range is nothing but a fuzzy thought for the time being.
What can we expect from the Model 3
The actual position of strength that Tesla finds itself in depends on the quality of the Model 3. If it lives up to expectations it will become the gold standard in the EV space. If the firm doesn’t hit those targets, it may do enough damage to its brand to invite competitors into the market.
We won’t really know the answers to these questions until we get a lot more information about the Tesla Inc (NASDAQ:TSLA) Model 3. Though the firm has built its first consumer unit, we haven’t actually seen the true launch. That’s expected to come some time toward the end of July.
Whether or not the Volkswagen I.D. turns out to be a Model 3 beater depends a huge amount on the structure of demand in the EV market. Do people who buy the Model S see the car as closer to an ICE engine Mercedes or a tiny electric motor powered Nissan Leaf?
If electric cars are much stronger substitutes for one another, the I.D. is dangerous. If, however, car buyers look more at things like size and additional features, Tesla is safe for another five years at least. That is assuming that Tesla will deliver on its Model 3 promise.
Tesla stock stays volatile
Whether or not you reckon that the Tesla Model 3 will live up to its promise, now isn’t the best time to play Tesla stock. The firm’s future relies too much on the subjective opinions of car reviewers right now to be predictable. If you believe in the long term mission at Tesla holding is probably a better strategy than trading.
On Friday morning Tesla stock was set to open a little lower, at least according to early trading. Shares have lost about 14 percent of their value in the last month.
Right now it’s hard to take anything that Volkswagen AG says about the I.D. sedans seriously. They exist as concepts right now. Though the firm appears to be taking the field much more seriously than others, there are many hurdles along the way.
The same, of course, is true of Tesla Inc (NASDAQ:TSLA) . Traders will be watching to see if the company can really build up to mass production, pegged by CEO Musk at 5,000 cars per week, by the end of the year. They’ll also be trying to predict whether or not the firm will be able to meet quality expectations with its affordable Model 3. Expect there to be a lot of over-analysis done of various car magazine reviews.
At the same time, coming off of a disappointing second quarter for deliveries, Tesla will have to show that it can keep demand for the Model S and Model X up. Elon Musk said that those cars’ underperformance was down to production problems. But some on Wall Street have claimed that demand for the luxury EVs is starting to really slow down.
Tesla stock was set to open at $322.80 on Friday morning.