Posted on December 11, 2016 by Matt Pressman
Guest Blog Post: Charles Morris is the Senior Editor of Charged, the magazine of electric vehicles, for which he writes a daily blog and regular print articles. He's also written five books including Tesla Motors: How Elon Musk and Company Made Electric Cars Cool, and Sparked the Next Tech Revolution.
Tesla Motors [NASDAQ: TSLA] stock has had a tough time lately. The Model 3 unveiling in April propelled it to around $265, but since then it’s been in retreat, and is now struggling to poke its head back above the $200 mark. There are at least two very good reasons for this - uncertainty about the Model 3 ramp-up and about the digestibility of SolarCity - but there are also a couple of theories making the rounds of the stock sites that are far less plausible.
Above: Tesla Motors (Instagram: jarrodbarnesphotography)
The entire EV industry is alarmed about the election of a US President who has vowed to undo everything that President Obama (a reliable champion of EVs) did, and who has named Scott Pruitt, a staunch ally of the oil industry, as his pick for EPA chief. Plus, rumors are intensifying about Exxon's Tillerson as front runner for his Secretary of State pick. Many in the punditocracy believe that Tesla’s newly empowered enemies will be able to kill or cripple the company. The tide of fake and misleading news stories about Tesla and Elon Musk has grown to a torrent.
However, Tesla is less vulnerable to government meddling than its detractors would have us believe. For one thing, it is a global company and, while the party of climate change denial may be firmly in control in the US, it doesn’t rule the world just yet. The EV revolution will continue picking up speed in China, where cities are ordering electric buses by the thousand, and in Germany, where VW just announced major new investment with the aim of bringing out an EV in 2020 that will offer 373 miles of range at the price of a diesel Golf. Killing the US EV industry would only result in ceding our competitive advantage (and thousands of jobs) to other countries, and it is to be hoped that the incoming administration will realize that sooner rather than later. A recent New York Times article urged the president-elect to call Elon Musk and talk about bringing manufacturing jobs back to the US.
Image: Tesla deliveries increase worldwide (Image: Tesla)
Second, despite what the trolls claim, Tesla is far from dependent on federal handouts. The only federal subsidy it (indirectly) receives is the EV tax credit of $7,500, which was implemented in 2008 under President George W Bush, and could only be repealed by Congress. Most observers agree that the credit has boosted EV sales in general, but for Tesla it’s really neither here nor there. No one who can afford a Model S or X is likely to make a decision based on a measly 7 grand. Anyway, by the time Model 3 starts rolling off the line in volume, the credit will be phased out (unless Congress extends it).
True, Tesla has made a nice little side business out of California’s ZEV credits, but that program, like the tax breaks the company will receive from the state of Nevada for its Gigafactory, is the purview of state, not federal, government (it’s also worth noting that several red states have enacted pro-EV measures).
The federal program that’s most important to the EV industry is the CAFE standards, which have forced mainstream automakers to produce EVs. It does seem likely that these will be watered down - the Alliance of Automobile Manufacturers sent a letter to Trump two days after the election, urging that environmental (and safety) regulations be relaxed. Ironically however, this could work in Tesla’s favor in the long run. If the legacy automakers curtail their EV offerings, that’s just less competition for the upstart Californians. Anyone who reads the sales figures can see that the demand for EVs is there, and growing.
Above: California plug-in electric vehicle sales surpass 250,000 milestone (Source: InsideEVs via California Plug-In Electric Vehicle Collaborative)
And that brings us to the other dubious demon for Tesla - competition from the major automakers that’s supposedly around the bend. The Chevy Bolt will be at dealers any day now, and new PHEV models are being announced weekly. For the mainstream press, that sounds like a real challenge for our intrepid entrepreneurs. However, those who are closer to the EV scene will immediately spot the apple alongside the orange. Tesla wants to sell its EVs - as many of them as it can. The legacy automakers want to sell just enough to satisfy government regulators, and get back to the lucrative business of selling pickup trucks. Yes, GM will make a big media splash for the Bolt launch, and yes, it will probably be an excellent automobile. But unless there has been an unannounced change of strategy in Detroit, the company will produce a limited number, to be sold mostly in California, and will do little or no advertising for its EV. Chevy is already running loads of ads for the new Cruze, which looks exactly like the Bolt and - surprise, surprise - is much cheaper.
There’s nothing wrong with the EVs that the majors are producing - I’ve driven most of them, and they’re great cars. But as long as the companies refrain from marketing their plug-in models (while spending millions to advertise their gas burners), nothing they build will represent any real competition for trendy Tesla.
As is the case with any high-flying tech stock, TSLA’s price doesn’t reflect the present, but rather the company’s future potential. That potential is gigantic, but it depends almost entirely on bringing Model 3 into volume production in a timely manner, and there are plenty of things that could sabotage that scenario. As long as that uncertainty remains, TSLA is vulnerable to any hint of bad news. But if and when Tesla offers a strong indication that the everyman’s EV is going to debut reasonably on schedule - watch out!