The core of the bear thesis on Tesla is that competition is set to arrive and punish Tesla margins.
For such to be true, cars need to be arriving, and be competitive on brand, looks, specs and price.
There is evidence that at least three different cars arriving in 2018 meet those conditions and the price difference is amazing.
My short thesis on Tesla (NASDAQ:TSLA) is simple: Before seeing direct competition, Tesla runs at a loss and needs constant equity infusions both to stay alive and to keep up with its capex needs. Once 2018 arrives, Tesla will start seeing increased direct competition. This competition will lower prices and hit margins further. If Tesla can't have high profit margins now, it surely won't have them after competition arrives. This dynamic will create bankruptcy risk from 2018 onwards.
For this direct competition to have the effects I state, it needs three things:
It needs to be directly comparable to what Tesla delivers. This means delivering range and specs.
The cars have to look decent. The General Motors (NYSE:GM) Bolt would already be very strong competition if its powertrain was simply inside a good-looking body.
The cars have to underprice Tesla. Tesla's margin pressure will come from two sources: A loss of volume to competing cars, and the fact that those cars will have lower prices for the same specs, forcing Tesla itself to lower prices and lose margin even on the volume it keeps.
In this context, I already have published one article focusing on a specific competitor, the Jaguar I-Pace. That article was titled "Tesla: Competition Set To Arrive - An Example." Today, I am going to update the competitive landscape, taking into account recent pronouncements. Here it goes.
Jaguar I-Pace
Already covered. It has the looks, the specs and the probable price to cause a problem (estimated at $63,000-$66,000, but let's call it $70,000).
Audi e-tron
The Audi e-tron was actually the first competitor to be promised by a luxury automaker. This happened back in late 2014, as the "D" (AWD) versions of Tesla's Model S were being launched.
The time for the arrival of this competitor is drawing nearer, though. So here's what we now know:
Looks. The car is expected to be close to the 2015 e-tron concept (though I'd expect a bit fewer displays in the cabin
Specs - Range. The e-tron is targeting ~450km in NEDC range for the base version (but higher for efficiency and performance models). This should be about the same range as the Model X 75D (237 miles EPA, my own estimate for the Audi is 231 miles EPA).
Specs - Acceleration. The e-tron is targeting 4.6 seconds 0-62 on the more powerful version. This is slightly faster than the Model X 90D (4.8 seconds 0-60). The base version will have horsepower that's close to the Model X 75D (301 hp for the Audi, 328 hp for the Tesla), so acceleration should be close.
Specs - Supercharging. The e-tron is expected to accept 150kw charging, so more or less in line with the Tesla Model X. A novelty here is that Audi (through the Volkswagen group) is teaming up with Ford, BMW and Daimler to make sure a supercharging network is available.
Price. The base e-tron is set to start at around 60000 EUR, which translates to ~$65,000. This is $25,000 below the Model X 75D.
Arrival to market. The e-tron is set to arrive in Q2/Q3 2018.
Mercedes EQ
The Mercedes EQ, based on the Generation EQ concept, is set to arrive soon as well. Here's what we know now:
Looks. The car is expected to be close to the Generation EQ concept (though I'd expect more conventional headlights - but an aerodynamic - closed, solid - front end is likely to remain. The interior still looks "too much like a prototype" so might get more traditional colors and seats):
Specs - Range. The EQ is targeting 500km in NEDC range for the top version. This is according to NEDC. This should be about the same or higher range versus the Model X 90D on the top EQ version. The lower version is likely comparable to the Model X 75D.
Specs - Acceleration. The EQ is targeting similar power levels to the Model X 90D on the top version, so should have similar acceleration. There is no information on the entry version.
Specs - Supercharging. The EQ is expected to accept up to 300kw charging, but this won't necessarily happen with the base version or even at launch. Quick charging, though, will be available. Mercedes is teaming up with Volkswagen, Ford and BMW to make sure a supercharging network is available.
Price. The EQ is set to cost the same as a "top-end GLC." The highest priced Mercedes GLC I can find is the Mercedes-AMG GLC 43 4MATIC. It costs the equivalent of $61,200 in the UK. It thus seems likely the base car won't cost more than $70,000.
Arrival to market. The EQ is set to arrive in Q4 2018 (was slated for 2019, was brought forward).
These three cars confirm the basic thesis:
Competition is set to arrive.
It will be competitive on brand, looks and specs.
And it will be priced significantly lower than the entry Model X 75D.
As a result, when this competition arrives Tesla will face difficulties in keeping its volume for the Model X and S without either significant price cuts or increases in content.
Another Factor Still
EV sales are heavily slanted towards markets with higher EV incentives. Thus, sales in places like California, Nevada, Norway, Denmark and some other places are particularly relevant for overall sales. This has the effect of concentrating competition in a few places.
For instance, even General Motors is said to have close to 10,000 reservations for Opel Ampera (European version of the Bolt) in Norway. In a market like Norway, where previously there were no long range EVs available other than Teslas, even a "lowly" Bolt is likely to have an impact on Tesla sales. Now imagine these more-competitive and better-branded EVs which are also significantly cheaper than the Teslas.
An Aside - China January Sales
Sales of EV and PHEVs in China dropped by 60% year-on-year in January. Changes to subsidies were the main source of weakness. Regular cars also saw tax changes, which pulled forward demand into 2016, leading to a nearly 10% drop in January.
China is a relevant market for Tesla, accounting for more than 10% of Tesla's 2016 sales (~8,000 units).
Conclusion
The short thesis based on significant competition arriving in 2018 is seeing validation in the comments from the companies bringing such competition. 2018 seems set to see the arrival of very competitive models from Jaguar, Audi and Mercedes.
These models aren't just competitive on brand, looks and specs. Most importantly, all of them are set to arrive at prices much lower than those Tesla charges for the entry Model X 75D. When this competition arrives, Tesla will be forced to either lower prices or increase content. Both will lead to lower margins and likely lower volume for Tesla.
