Tesla Motors Inc (NASDAQ:TSLA) is getting the production line for the Model X EV SUV up and running, but the firm may have issues selling the car when it finally arrives. People are already complaining about some design features, even though a final model won’t be seen until the first unit ships toward the end of this quarter.
On Thursday James Sanford, portfolio manager at Sag Harbor Advisors wrote a piece for CNBC lambasting some of the features of the Model X, with the car’s falcon wing doors taking most of the brunt of the polemic. Mr. Sanford said this “hump” vehicle not only must carry the sales torch, but could be carrying the “going concern” torch.”
Learning to hate the Model X
Mr. Sanford may seem a little extreme in his calling the Model X a “hump,” but he has valid concerns about demand for the Model X, and the lack of risk that Wall Street is pricing into the launch. Mr. Sanford questions the wisdom behind the falcon wing doors, saying that they will preclude some standard luggage and equipment storage space.
He wants to know where the space for “luggage for a family of 4-6, canoes, surfboards, 3-4 bikes” is on the Model X. Most of those looking to buy the SUV EV may never use that added capacity, but that doesn’t mean it has no influence over a buying decision.
“When the target Model X consumer, the ‘soccer mom,’ realizes she can’t fit extra luggage, surfboards, etc. into the car, what is her reaction going to be?” he asked.
The lack of space on the roof is mollified by the huge trunk that sits in the front of the car, and Elon Musk promised that the car will have enough room to fit seven adult passengers and their luggage with comfort.
The problem is that Tesla isn’t going to let anyone see the Model X until the first one arrives at some point in the next three months. People won’t be able to decide whether the car fits their needs until just before it’s set to ship.
Wall Street denies Tesla Model X risk
Many of Wall Street’s best minds are confident that the launch of the Tesla Motors Model X will pass of without a hitch, and it had better. Tesla is a poor cash position, and if the launch of the Model X goes wrong, the firm may find it hard to finance a fix to any problem that might arise.
Brad Erikson of Pacific Crest, who visited the Tesla Motors factory in Fremont, California recently, said in a report published on June 26 that there was little to worry about in the launch of the Model X.
He said that he expects the reviews of the SUV EV to be great when it arrives. Those reviews “could certainly prevent a ‘sell-the news’ type of scenario,” says Mr. Erikson. Other voices on Wall Street are adding weight to the idea that the Model X is an almost certain win for the firm.
On Thursday, after Tesla Motors released its great second quarter sales numbers, Trip Chowdhry of Global Equities Research said that Tesla should have no problem selling more than 62,000 cars this year including sales of the Model X.
Baird’s Ben Kallo says that he and his team “recommend buying shares at these levels ahead of the Model X launch.” He thinks that though there may some risks in the launch, consumer demand for the Model X should be enough to get over any teething problems. If some commentators are to be believed, he may want to take a second look at the car before asserting that.
The Model X looks underwhelming
The outer design of the Model X, or at least the versions of the car we’ve seen on the street since Tesla Motors began testing it, might not be the easiest thing to sell. The SUV has gotten some less-than-positive appraisals for its looks, and that might dampen the appeal when the car appears on the road for real later on in 2015.
Mark Wilson at Fast Company was particularly hard on the Model X after the initial design for car was shown to the public for the first time in 2013. In a post published on January 18 of that year Mr. Wilson called the SUV “an uninspired yuppie-mobile (do they still make yuppies?), a pornographic attempt at erotica.”
He also came down pretty hard on the falcon wing doors, “the Model X is a generic-looking car, he wrote” Not a single statement within the design is confident enough to say “I’m a Tesla, dammit.” Instead, designers attached these doors to do the shouting instead.”
Undoing the Tesla Model X
There’s no time to redesign the entire Model X, and there’s likely no need to. There’s plenty of people that buy cars with reservations about the look because they’re looking for something else from the car. The Model X should have a whole lot of “something else” to offer. At the same time there’s plenty of people out there who actually like the way the SUV looks.
While Tesla won’t be able to undo the huge amount of money the firm has put into the Model X, those that buy it will. Tesla Motors has a fairly lax return policy with the car. If you buy it and you don’t like it you get to return it.
With 20,000 cars booked with deposits of $5,000 each, there’s no telling the cash-flow disaster that a poor Model X launch could bring to Tesla. Investors may be worried about that heading into the launch of the car.
Buying and selling the Model X
Those looking at Tesla Motors on Wall Street will have the seen the recent rise on the back of strong Model S sales. Many will be looking to the risks in the Model X launch and questions about whether it’s worth sticking to the stock through the release are sure to abound in coming months.
There is no answer to this question that will satisfy every shareholder, but there are a few key ways in which you can play the Model X. The first is to decide early whether or not to play the launch. When the car arrives, it could cause huge peaks and troughs in Tesla stock.
Any veteran owner of Tesla shares knows that these temptations to sell are short term, and that the long term view is the one to trade with Tesla. There are two paths that the Model X could lead the firm down.
If Mr. Sanford is right, demand for the Model X will fall short and those that booked the car will ask for their money back. Tesla will enter into a huge cash problem in the quarters after and the firm’s stock will plummet.
If Wall Street’s Mssrs. Chowdhry, Erikson and Kallo are correct, the release of the Model S will go off without a hitch, and the future of Tesla Motors will be assured. After last week’s rise, now is the time to consider the Model X and choose which future you believe in.