Tesla’s third-quarter result was a huge disappointment for investors. The company was expected to hit 1,500 deliveries of its Model 3 but was able to produce just 260 units during the quarter and deliver 220 of them. Tesla delivered 26,130 vehicles during the quarter, 4.5% more than it delivered in the third quarter of 2016.
Growth of 4.5% would have been a great number for companies like General Motors (GM, Financial) and Ford (F, Financial), but these are companies at the peak of their production capacity selling millions of vehicles worldwide each year. Tesla is the new kid on the block, having just crossed a significant milestone of making and selling more than 100,000 vehicles per year. Tesla will be in a ramp-up mode for many more years and will have to get as close as it can to its own targets. Why? Because there are more than 400,000 customers waiting to get their Model 3 in the next few years.
But that’s just one of the reasons that Tesla needs to move fast.
The roaring reception the Model 3 has had all over the world has triggered an arms race between carmakers, one that addresses the growing market for fully electric cars. General Motors, Volvo (OSTO:VOLV A)(OSTO:VOLV B), Land Rover, BMW (BUD:BMW, Financial) and many more carmakers around the world have made significant moves to enter into the electric car market. Some companies even have plans to only make electric or hybrid cars in the future.
"Volvo is done with entirely traditional engines and exclusively gas-powered vehicles, the company announced. By 2019, Volvo group intends to offer only either fully electric or hybrid engines on all new models, making it the first automaker to commit to using only alternative drive trains."Â –Â Techcrunch
These are companies with established production capacities, and they are working their way into the electric car market. The question is, how much of a novelty will Tesla’s electric cars be if a large number of automakers start selling all-electric cars. A bit but certainly not the same as the novelty level Tesla enjoys now.
Tesla is sitting on a huge advantage now because it is the only electric carmaker with a range well north of 200-plus miles on a full charge. The best part is that its range is tested and proven by thousands of customers while Tesla’s rivals are yet to prove their cars’ reliability and range in the market. But things won’t be the same five years from now.
Tesla’s best opportunity to capture market share and race to the top is the next five years before the electric car market gets crowded and existing players figure out how to keep pushing their electric car ranges higher and higher. Every quarter of missed targets not only disappoints the customer who happily reserved the car and is waiting for it to arrive but also gives the competition more time to get its act together.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
