Troubled Tesla makes mark on auto industry
As the cash continues to burn at Tesla Inc., Silicon Valley's pre-eminent auto startup already may have done enough to leave its mark on the industry.
The American electric-car brand challenged such foreign luxury giants as Germany's BMW, Mercedes-Benz and Volkswagen AG's Audi. And Tesla did what Cadillac and Lincoln always struggled to do: upset the status quo.
Founding CEO Elon Musk did so by distancing Tesla from its domestic competitors in Detroit, taunting the Motor City for its reliance on internal combustion engines. He took to Twitter last year to hint it was General Motors Co.'s failed EV1 in the late 1990s that inspired him to start Tesla. And he accused Detroit of trying to "kill" the electric car.
"Musk has already done enough to make his mark," said Ivan Drury, an automotive analyst for Edmunds. "The company could go away tomorrow, and the impact won't change."
Musk has done it his way, industry analysts say. Tesla continues to consume cash at an alarming rate, explaining a Goldman Sach's report Tuesday predicting Tesla shares would fall 30 percent in the next six months. The Silicon Valley automaker has stumbled through the launch of the long-awaited Model 3 compact, even as the CEO insulted investors and drew scrutiny from the Securities and Exchange Commission with his infamous "take private" tweet — all in the past year.
Amid Tesla's struggles, the legacy competitors he sought to challenge are beginning to beat him at his own game. Detroit looks a lot different 15 years after he founded the company, as hometown automakers launch EVs and plug-ins designed to appeal to wealthy early adopters, while preparing to meet stricter emissions standards in the U.S. and abroad.
Luxury competitors are catching up, too. The Jaguar I-Pace is the latest challenger, boasting a 240-mile range. Others, from Mercedes and Maserati to Ford Motor Co., are investing millions in high-end or performance-based battery-electric vehicles.
"If we've learned one thing from the first cycle of battery-electric vehicles in the industry, it's that those customers really want nice products," Jim Farley, Ford's president of global markets, said in an interview. "What they're saying to us is 'please make sure these products are really aspirational.' That's why our first BEV is inspired by a Mustang."
For all of Musk's polarizing qualities, his initial crusade to create an all-electric car company made EVs into performance-based, luxury cars — with considerable range — while the rest of the industry focused on middle-market, short trip electrification offerings.
Facing murky safety regulations, Tesla also pushed the envelope to deliver AutoPilot. It called the system "an incremental introduction" of self-driving technology, and likened it to "systems that airplane pilots use when conditions are clear" in its 2015 announcement. And Tesla's sleek interiors ensconced high-tech features in the luxury segment's must-haves.
But Tesla's advantages may be evaporating. Fifteen years after the company's founding, Musk still isn't making money — free cash flow was negative $739 million for the second quarter. And that was considered an improvement by investors preparing for worse.
Goldman Sachs set a $210 six-month price target on Tesla in its report issued Tuesday, down significantly from its market close Friday of roughly $301. To back its bearish assessment, the report cited increased competition in the EV market, the pinch on margins as Tesla's federal tax credit phases out, and evidence that Tesla's spending is on the rise again.
"While we see the potential for a better near-term backdrop with growth in Model 3 production/deliveries," Goldman Sach wrote, "we believe this will likely not be sustained as working capital tailwinds abate and as spending ramps back up after a period of cash conservation."
Some are losing patience as Musk fails to deliver on a number of Tesla's promises. Chief among them is the botched launch for the crucial "affordable" Model 3 sedan, which continues to play out as GM ramps up production of its long-range Chevrolet Bolt EV and other traditional automakers enter the segment.
And as Telsa's controversial AutoPilot system continues to take heat — particularly after two fatal crashes this year with the system engaged — GM is getting ready to expand Cadillac's hands-free Super Cruise technology across the brand and later to other GM marques.
On electrification, GM's Chevrolet Bolt remains the only affordable, long-range EV in the U.S. market — and it's the third most cross-shopped model against the Model 3, after the Model S and Model X, according to Edmunds.
After Musk pitched a tent to house an assembly line and reach Tesla's 5,000 unit production benchmark for the Model 3 in the second quarter, deliveries of the vehicle increased to 18,440 from just 8,180 in the first quarter. But the electric vehicle manufacturer also reached its 200,000-vehicle cap for the $7,500 federal tax incentive for EVs in the second quarter, making it more difficult for the Model 3 to reach the affordability level Musk initially promised.
"Looking at cases where EV incentives were cut or reduced in the past, EV sales
saw significant reductions," Goldman Sachs wrote. "Notably, we saw this occur in both Denmark and Hong Kong, where Tesla previously had high market penetration. Ultimately, we see similar risk as the U.S. federal EV incentives will begin to phase out" for Tesla this year.
GM is now committed to bringing 20 all-electric vehicles to market by 2023. Ford is investing $11 billion in electrification over the next four years. Even Fiat Chrysler Automobiles NV, whose late CEO called EVs a money-losing proposition, is investing $10.5 billion (9 billion euros) in electrification over the next five years.
And if Tesla is redefining American luxury to include electrification, Detroit appears up to that task, too. Lincoln's upcoming Aviator has a plug-in hybrid option, and Farley said the electrification route fits in well with the brand's direction toward "quiet flight and smooth, effortless performance."
While the Blue Oval hasn't been specific about its electrification plans for Lincoln, Farley said "you can imagine because of our brand direction for Lincoln it's a natural to use battery electrics and plug-in hybrids."
Cadillac's recently-ousted president, Johan de Nysschen, had said Cadillac would also be leaning into electrification, representing a "disproportionate share" of GM's 20 EVs by 2023. The brand's new president, Steve Carlisle, is expected to continue with the product plan laid out by de Nysschen.
"Partially because of his antics, Elon has to some degree pushed the needle and moved the industry forward," Drury said. "Tesla hasn't had everything to do with shifts to electrification and autonomy. But he broke a lot of rules, agitated a lot of people and helped bring a level of competition that is very healthy for the market."