Electric shock warnings at Tesla
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I have never driven one, but by all accounts, Tesla makes great cars. The newly unveiled Plaid model can accelerate from standing start to 100 kph in about 2 seconds, which is neck-breakingly fast and quicker than any supercar with a petrol engine currently on the road. It can also go for more than 600 kilometers on a single charge.
Remember the days when petrol-heads tut-tutted about electric vehicles (EVs) and said they would never match the performance of a good old internal combustion engine? Forget it, they already are outperforming big time, and we are only in the early days of the EV revolution.
And it’s not just Tesla’s engines that are running flat out. The share price of Elon Musk’s company has been turbocharged (or whatever the EV equivalent) for most of the pandemic period, and its current market capitalization of $655 billion is more than the combined value of General Motors, Ford, Toyota and Volkswagen combined, propelling Musk into the top ranking of the world’s wealthiest billionaires.
Tesla has made a profit for the past five quarters, which is pretty good for a cash-intensive operation that is also spending lots of money on high-tech R&D. Those enthusiastic shareholders must be looking forward to more long-term growth value to make up for the lack of dividend.
But several developments recently make you wonder how long Tesla’s electric-charged share price performance can continue.
For one thing, those profits do not all derive from selling cars. Tesla makes a lot of money — sometimes all or most of its declared profits — from selling the carbon credits, to which it is entitled as a “clean” manufacturer, to other car manufacturers, which want them to balance their own less environmentally friendly product.
The point is that all car manufacturers are going electric in a sector that Tesla has had more or less to itself for some time. Once the big beasts of Germany and Japan enter the race, it seems certain that Tesla will feel the hot breath of competition on its neck.
Frank Kane
Tesla made $1.6 billion selling credit across the world in 2020, and declared a profit of $721 million. Nice work if you can get it, and you could argue that Tesla should be rewarded for being a company that cares about the planet and is making a product that will help reverse climate change.
But how long other manufacturers will indulge Tesla is now a matter of some doubt. Stellantis, the grouping that includes Fiat Chrysler and Peugeot, has said it will not be buying Tesla credits anymore. Other manufacturers must also be questioning the need to effectively subsidize their most serious rival.
In fact, the “legacy” manufacturers are all waking up to the challenge from Tesla. All have big plans for electrification of their fleets over the next few years. Daimler, for example, has declared that “the future is electric,” and has launched a top-end EQS model that beats Musk’s models on several criteria. German bankers are calling it the “Tesla fighter.”
The point is that all car manufacturers are going electric in a sector that Tesla has had more or less to itself for some time. Once the big beasts of Germany and Japan enter the race, it seems certain that Tesla will feel the hot breath of competition on its neck.
And it is not just from the legacy carmakers. Musk is also facing a challenge from another California manufacturer, Lucid Motors, which has the backing of Saudi Arabia’s Public Investment Fund and produced some pretty stunning designs for its first car, the Air.
While Tesla has a distinct first-mover advantage in its native US, it has much less of a lead in the big Asian markets, such as China and Japan, where there is massive demand for EV but where local manufacturers are favored by consumers and the authorities.
For example, it is not difficult to imagine Tesla falling victim to some customer-led backlash in China, as Apple periodically suffered during the height of Trump’s trade wars.
To cast doubts on the long-term appeal of Tesla, or its share price valuation, should not be confused with being anti-EV. The electric age is surely coming in road transport, and is probably a good thing. But Tesla is no longer synonymous with that transition.
• Frank Kane is an award-winning business journalist based in Dubai. Twitter: @frankkanedubai
