Tesla Motors Inc has grown into the kind of car-maker that sets trends. The firm’s coming Model X release has been seen by other auto makers as a potential game-changer and they’re trying to catch up. German car-maker Audi is the one of the firms always trying to enter the field. The e-tron quattro just isn’t worth betting on, however, at least not according to Stifel.
That comes from James Albertine, an analyst that studies Tesla Motors for Stifel Nicholas. He has a $400 price target on Tesla Motors, and he believes that the Audi e-tron is more a reflection of the sad state of the competition than it is a real competitor to the Tesla Model X, or Tesla Model S.
Audi e-tron quattro fails to beat Tesla Motors
Mr. Albertine focused on many points on the Audi release about the e-tron quattro to support his thesis that the car is no match for the Model X. Audi is set to promise a 310 mile range, but it won’t have that until 2018.
The Model X will land within 10 percent of that number at the high end, but it’s set to arrive on the road in the next six weeks. The e-tron quattro is just not up to spec when put side by side with the next Tesla Motors release.
It’s so far behind, says Mr. Albertine, that “The e-tron quattro, in our view, will have more competition from the next generation Audi Q5 and Q7 than it will from the Tesla Model X.”
The Stifel analyst added that seating in the e-tron quattro will be a very sore point for those looking to buy an EV SUV. The Audi e-tron will have just 4 seats. The Tesla Motors Model X will have seven. Audi doesn’t seem to be aiming for the same market as the Model X, and the firm doesn’t seem to be able to compete with Tesla on even ground.
Why can’t anyone compete with Tesla Motors?
Mr. Albertine may have been onto something when he highlighted the low sales of the BMW i3, the car that the German firm said would be better than the Model S. The car, despite the BMW brand and lower price point, sold just 16,052 units in the full year 2014.
Mr. Albertine, in his report on Thursday, said that problems “still exist related to re-training/incentivizing sales personnel to focus on EVs.” He added that “lackluster BMW i3 sales as perhaps one symptom of this much broader, and largely overlooked concern, in our view.”
Stifel doesn’t think that other car makers have the ability to design an EV properly, judging by his comments on the Audi e-tron quattro, and even if they have a decent model they’re not able to sell it, as is happening with the BMW i3.
This appears to be the key. Though many car makers are looking to compete with Tesla Motors , very few are taking that job seriously enough. Very few of them know the in and outs of making a great EV, and, even if they get there, selling it poses a major problem.
Building a real Model X killer
The real problem for Tesla Motors , and other firms breaking into the EV world, is that the major competition is not each other, but an entirely different idea of what a car should be. Forget about hydrogen, which Elon Musk pretty much discounts completely, it’s all about the tension between the EV and standard ICE cars.
Tesla Motors is a pure EV firm. It’s not going to touch the design of an ICE car any time soon. That allows it to focus on building the infrastructure needed to build and sell the idea of EVs to people who are worried about their range, safety features and getting hacked on the highway.
Audi can’t do that. It can’t tell its sales people to warn against ICEs like the Q7 because of the cost of fuel, or the emissions, or the noise. It’s going to have to tell them that there’s advantages and disadvantages to both. Apple doesn’t make too many “pros and cons of the iPhone” ads. There’s a reason for that.
When a firm that makes ICEs begins to build EVs for the mass market, rather than just to cash in on ZEV credits in California, they begin to compete with themselves.
That’s not impossible to do, but it’s not easy to accomplish, especially under the same brand. The Tesla Motors Model S is selling more than the Nissan Leaf despite being about twice the price. Even Nissan, which has made a big bet on EVs, can’t help but marginally stymie sales in order to protect itself from itself.
Tesla Motors is the pure EV maker
Purity has a lot of connotations, and for some Elon Musk fans they might be an appropriate connection, but in market terms it simply means that Tesla Motors makes EVs and nothing else.
The tension that Mr. Albertine can see in other car makers, and their inability to come up with something that will truly face off against either the Tesla Motors Model X or Model S, is a result of impurity. Audi, Nissan and Chevrolet are all competing with themselves.
When somebody walks into an Audi showroom, the sales person can try to get them to buy a more expensive model. Trying to get them to buy an EV takes skill. It also takes a list of reasons why an EV is better than an ICE car.
Audi, and the rest of the firms that rely on ICE, don’t want to make Gerald Ratner’s mistake.
Mr. Ratner was the CEO of Ratners Group, a major British jewellery maker. During a speech more than 20 years ago Mr. Ratner famously said “We also do cut-glass sherry decanters complete with six glasses on a silver-plated tray that your butler can serve you drinks on, all for £4.95. People say, “How can you sell this for such a low price?”, I say, “because it’s total crap.”
Tesla Motors competes with itself
Though it only makes pure EVs and it doesn’t have the same kin of internal tension as can be seen at Audi, it’s clear that Tesla Motors is competing with itself in a different way. If one of the other firms can break into the market in a consistent way, or a new firm, like Apple gives the EV a go, Tesla Motors could lose out.
That’s due to what Mr. Albertine, in this morning’s report, called “Tesla’s potential for self-inflicted production/quality issues.”
Elon Musk is an innovator, but he doesn’t run a perfect firm. Tesla Motors has caused itself a huge amount of problems. That’s the price paid for trying to break into such a competitive industry.
Those issues, if they continue to weigh on Tesla Motors in the coming years, could give a firm like Audi the chance it needs to become a leader in the EV space.
For the next three years, however, as long as the German firm sticks to its idea of launching the e-tron quattro in 2018, Tesla Motors will be safe from an attack.
With debt building, and the forecast for when Tesla Motors will actually generate free cash flow growing farther and farther away, the tension inside the firm is dangerous. It’s nothing on the kind of tension that results in the e-tron quattro, or a BMW that can’t be sold, however. That’s something for Tesla shareholders to be happy about.