Tesla Motors Inc (TSLA) Model X Undermined by Dreamlike Rumors

Tesla Inc Model 3

Tesla Motors Inc  may not have its destiny tied to the world of luxury car making in the long term, but for the time being the firm is trying hard to rip market share from the likes of Audi, BMW and Mercedes. The Model X is the linchpin of that strategy.

It will finally give Tesla lovers some kind of choice, and give super fans a reason to splash out on a second car. For now, however, we’re still being kept in the dark about the SUV. One analyst thinks the Model X doesn’t even matter that much, given the work Tesla Motors is doing elsewhere.

Tesla Motors Inc (NASDAQ:TSLA)
Tesla Motors Inc Model S factory line

During the firm’s earnings call for the third quarter of 2015 Elon Musk revealed some key info about what’s happening with the Model X. As the firm’s share price sinks back to pre-earnings levels, it seems that the bump Tesla Motors got from that honesty was very short lived.

It’s not clear now what a recovery in the firm’s stock will look like, but there are some ideas out there.

Model X may not be the future of Tesla Motors

Adam Jonas of Morgan Stanley, who despite Elon Musk’s assurance believes Tesla Motors  will miss its shipment guidance for 2015, has a very different view on what the future of Tesla Motors will hold. He doesn’t see Elon Musk taking a place in the luxury market and turning his firm into a low margin, mass market EV seller.

Instead he sees Tesla putting itself at the bleeding edge of group mobility. In his view the firm will likely release an app in 2016 that will allow ride sharing much like that offered by Uber. In the coming years, as self-driving car tech becomes more and more able, the firm will be able to do away with drivers and make a network of self-driving taxis.

Tesla Motors will, according to Mr. Jonas, be able to charge by the mile and turn its brand and technology into something much more valuable than a car maker. That’s why he has a $450 price target on the firm’s shares.

Built into that idea, however, is that the Model X simply isn’t that important. For those who really want a luxury Tesla Motors SUV it’s going to be a great car, but in Mr. Jonas’ view it’s just not a major part of the future that Tesla Motors is building.

Tesla Motors Model X wait drags on

Tesla Motors   says that the biggest problem in making the Model X is the “sculptural” second row seats. The firm found third parties were simply not able to make the seats on time, so it built a line that would make them in Fremont, California.

That offers a valuable window into the way Tesla Motors works, but at its heart it’s a sign that Tesla Motors is still only half-formed. The firm doesn’t hit launch targets very often, and when it does the targets have already been moved multiple times.

The Model X is very late, but Tesla Motors is hoping to get a chunk of the Signature versions of the car shipped before the end of the year. That means the EV SUV won’t add much to the firm’s third quarter target of 17,000-19,000 units, but a start is a start.

If the Model X is up to scratch, and after so many delays it had better be, the car may add more to Tesla Motors’ future, even if doesn’t directly contribute to the fate Mr. Jonas has outlined for Elon Musk’s firm.

Model X may help out

It’s likely to take quite a while before the Model X makes back the kind of money that Tesla Motors has burned on trying to build it. From the three or four year design process to the countless part tests and manufacturing failures, the Model X is, according to Elon Musk, “the hardest car to build in the world.” It’s also been a very expensive project.

It will, if Elon Musk’s ideas about demand for an EV SUV are right, start to bring a stream of cashflow to the Tesla Motors. Mr. Musk reckons demand for the car could rival that of the Model S in the year or two to come. The Model X may be the part of the puzzle that stops the almost endless, “eye-watering” cash fire that’s been burning at Tesla Motors.

If the Model X does manage to slow the cash burn, or turn it around, it will be key to bringing Tesla Motors to the future described by Mr. Jonas. It’s probably not quite the time to bet on that future just yet, however. There’s little enough out there, bar Jonas’ word, that suggests he’s right about the Model X and Tesla Motors.

Waiting for Tesla Motors’ confirmation

The most that Adam Jonas has to go on, for the time being at least, is a hunch, the idea that Tesla Mobility makes sense and a vague comment from Elon Musk about now not being the right time to make an announcement.

Mr. Jonas plans rely on a lot of things going right at Tesla Motors. The Model 3 needs to be built and sold at a certain price level, regulators need to play along, and the firm’s brand needs to be able to make a quick transition from luxury to mass market.

Before buying into the Morgan Stanley thesis about a future business that Elon Musk may or may not jump into, it might be better to wait for Tesla Motors   to make some kind of move in that direction.

Mr. Jonas admits that there is a level of uncertainty in his thesis, and his Buy rating and 100 percent upside target support that. There’s not much reward out there without taking on risk, and Tesla Motors has made no sign at all that the reward Mr. Jonas refers to is even on the cards.

For those that reckon the Model X looks like a great car, don’t let its place in Tesla Motors’ long term plans deter you. Even if the firm does center itself on a mass mobility model with the Model 3 as its foundation, it’s likely that Elon Musk will support those who shelled out $100,000 on a Model X. That’s what the firm did for those with similar outlays on the Roadster over the past decade.

Going forward it will be interesting to see which of these ideas wins the hearts and minds of those with money behind Tesla Motors. Mr. Jonas’ dream is a tempting one, if only for it’s ultra-high price target, but it’s not the plan that Elon Musk has outlined. People love Tesla Motors because the firm makes great cars, and a move away from that could undermine the future of the Model X, and the firm’s brand power as a whole.

If investors do latch on to Mr. Jonas’ dream of Tesla Motors’ future, that could undermine the firm’s efforts to keep selling luxury cars. After all the firm still hasn’t managed to make a profit in that market, despite pouring millions into it.

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