U.S. electric car maker, Tesla Motors (TSLA, Financial), is about to declare its fourth quarter numbers on February 11, and CEO Elon Musk seemed confident of capturing hearts in the electric vehicle market when he gave his speech during the Detroit Auto show held last month. But the Tesla stockholders and the speculative analysts are not very positive on the upcoming future of Tesla as the top notch automakers such as General Motors (GM, Financial) and Volkswagen (VLKAY, Financial) are trying to eat into the EV maker’s pie by launching new vehicles, the designs and features of which were disclosed at Detroit where Tesla unwrapped the technical architecture of the Model 3. There are also other auto makers following similar trends thus crowding the EV market, which at some point of time was ruled by Tesla alone. Let’s get into what type of headwinds Tesla might face in the future and what expectations have been built by analysts on its upcoming fourth quarter report card.
Tesla to feel the heat building up gradually
Up until now, Tesla has somewhat ruled over the EV market of the auto industry, but now there are some disruptions down its road of success. With the luxury segment players such as Mercedes-Benz (DDAIF, Financial), Porsche (POAHF, Financial), and Audi (AUDVF, Financial) planning to launch electric luxury vehicles close to the launch of Tesla’s Model 3, the monopoly is about to see a break and there is a battle that’s likely going to create a dent in Tesla’s high-flying plans.
Even mass market players are about to challenge Tesla’s monopoly in the EV segment. General Motors revealed the Chevrolet Bolt at the Detroit Auto Show last month that is due for production by late 2016, almost a year ahead of Tesla’s Model 3 release in the market.
Volkswagen has promised to launch more than 20 models of battery driven cars in China by 2018, which remains the major market for Tesla EVs besides California in the U.S.
Nevertheless, Musk seems confident to grow the sales numbers of the company after the launch of the Model 3 with a reasonable sticker price of $35,000. Even while speaking at Detroit, he reiterated that the Silicon Valley automaker would be producing a “few million cars” by 2025. But how this would see the light of the day is still under a lot of speculation as the Model 3 will perhaps hit full production only around 2020. By the time this model enters the full production phase, other rivals now targeting the EV segment might have already begun seeing rosy days and Tesla might have to take a beating.
But the CEO is taking an optimistic stand as he foresees a better future for Tesla cars, though currently it’s heavily spending on the development of Model 3, its future flagship model which could signal brisk growth in the profits. Meanwhile, Elon Musk has passed the message that the company would grow the top line, but would continue reporting losses until 2020 when the Model 3 would enter the total production phase.
Analysts hold a bullish opinion, though headwinds appear
Tesla’s stock has improved 28% over the past year and investors are bullish on the stock though there are chances of rivals joining the race in the EV segment. Analysts have also opined that they see a huge potential for future growth of Tesla with Model 3 and Model X entering the auto market.
Meanwhile, speculative analysts have opined that Tesla would witness revenue growth in the fourth quarter and as per estimates of Thomson Reuters analysts, the company could report revenue of around $1.23 billion, up from $761.3 million reported last year in the same quarter. Net profit would also improve from $45.9 million to about $46.1 million. However, as China sales might see a hit in the fourth quarter as portrayed by Elon Musk during his Detroit speech and due to rising developmental costs for Model 3, adjusted earnings might be down by $0.02 a share to $0.31 a share.
Some analysts are maintaining their positive tone on the Tesla stock as it enters a new fiscal year and see improvement in its margins led by manufacturing cost reductions and heightened Model S production through expansion of production capacity at its Fremont factory this year.
Last word
Whether Tesla is able to meet the sales prediction of 320,000 vehicles for the 2014 fiscal year is yet to be unveiled on Wednesday when the company releases the fourth quarter earnings report. Also, the earnings will have to match the lofty expectations of the analysts who have maintained their bullish attitude on the EV maker amid intense competition cropping up from all corners. Let’s stay tuned until the results are out and then we will be in a better position to judge whether the electric car maker really holds immense potential for growth.
