Far be it for me to say I told you so.
Still, the invisible hand of the marketplace is giving that young upstart Tesla Motors the great, big swat that anyone who a) can read a balance sheet and b) understands the complexity of the car business has known all along. I've argued that Tesla is not yet a fully formed car company, and the marketplace is now showing agreement.
Tesla has lost about a third of its market cap since shares hit a high of about $290. More of this is coming. If I could trade in automotive stocks – I can't; it's a conflict of interest – then I'd be shorting Tesla. Tesla's shrinking market capitalization – about half of BMW AG's – is absurdly high. Even CEO Elon Musk has confessed that investors have been too generous in pumping up Tesla's stock. Musk, also the SpaceX founder, is seeing his electric vehicle company come back to earth, like a satellite that has fallen out of orbit.
This is good. Tesla should be seen for what it is: an interesting start-up, a disruptor, a provocateur, an innovator and a challenger of the status quo. None of those makes for a company of investment grade. The sooner Tesla ceases to be a stock play for speculators and the ill-informed, the better.
Musk himself made the best case for Tesla at the recent Automotive News World Congress in Detroit, arguing that electric cars are fundamentally better than gasoline or diesel, but conceding that the future will only go there "if the big car companies make risky decisions to do electric vehicles." He left out big oil companies and producers, which also have a large stake in seeing Tesla and its ilk fail.
He then said that Tesla's greatest contribution will be to cut "a path through the jungle to show what can be done with electric cars. The significance we will have is the degree to which we do force other companies to accelerate their plans."
Tesla has already largely accomplished that goal. At the recent Detroit auto show, GM wowed visitors with the Chevrolet Bolt EV, as well as the next-generation Chevy Volt plug-in hybrid. BMW is forging ahead with its i-brand of EVs and plug-ins. Audi, Ford, Honda and others have already made big and growing commitment to EVs, hybrids and plug-ins.
Leading them all is Nissan-Renault. CEO Carlos Ghosn said in Detroit that far from being a negative or a competitor, Tesla is "helping us" gain market acceptance for Nissan's Leaf EV. The more the EV market fills up with heated competition, the better it is for Nissan, he said.
Indeed, Ghosn said Nissan is planning a major upgrade to the Leaf for an expected 2017 launch. That Leaf, like the Bolt, will surely have a 300-km battery range. "You can expect us to come along with a lot of enhancements" for the Leaf, he said. He didn't mention the smaller, cheaper Tesla EV planned for 2017, but he knows about it.
Perhaps the truest words Musk spoke at the Congress were these: "I think we're really going to regret the amount of carbon that we're putting in the oceans and atmosphere. We're really going to regret it."
Done correctly, EVs promise a dramatic reduction in the carbon footprint of personal and commercial vehicles. That can only be a good thing.
However, the hype that drove Tesla's shares to absurd highs last year was bad in that it created unrealistic expectations. Musk didn't help himself there, either. Last year, by saying Tesla has a goal to deliver 500,000 vehicles in 2020, up from an estimated 33,000 units in 2014, he overplayed his hand. He made things worse last week by saying Tesla should be able to deliver a few million vehicles by 2025. If you understand the car business, you know that is a ridiculous claim.
As Barclays Capital said in an analyst note, Tesla will have "a tough time" getting to a few million cars by 2025. Barclays expects Tesla to deliver 426,000 vehicles in 2020, well short of Musk's goal.
Musk might want to take a page out of Ghosn's book if he wants to gain more credibility. In Detroit, Ghosn said "zero-emissions technology, particularly electric cars, is here to stay and here to grow." He was careful not to dig too deeply into sales numbers, having been previously caught out for stating unrealized sales goals for the Leaf.
What Ghosn did say is that EVs are here to stay. Governments are making certain of it.
"Even if I don't know what I don't know, which is the oil price, there is one trend which is unmistakable – it is emissions regulations are going to become tougher." That reality will drive more EVs into dealer showrooms.
So look at Tesla for what it is, a speculative start-up that is having a significant impact on the auto industry. This is not an investment grade car company; far from it. One day, Tesla may even grow into a full-fledged, viable, profitable, global car company. You read it here. But I'd never come back in a couple of years to say I told you so.
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