Failing to Deliver on Promises Will Cost Tesla

Back in 2014, when Tesla (TSLA) publicized its Gigafactory plans, the company also claimed that the plant will be a fully integrated manufacturing facility, beginning with precursor materials like aluminium foil, copper foil, separators and several other electrode components, and developing with fully-assembled battery packs.

Moreover, it assured stockholders that numerous sub-suppliers would trace at the factory, and that locating all of its partners under a single roof would result in huge cost savings, thus flooring the way for a 30 percent cost decline in batteries.
However, those were all just promises that the company couldn’t deliver upon as it silently dropped them from its yearly report last February. As a result, it is likely that the company may find it difficult signing up additional partners.

On the other hand, Tesla has clearly specified from the starting that it predicts the imminent half of the year to signify a greater portion of deliveries compared to the first half. However, the company missed its own guidance for vehicles in first as well as second quarter, as it delivered just 29,190 vehicles throughout the year, compared to 33,000 vehicles delivery.

However, Tesla has indicated that it is reducing its full year guidance, as it now projects to manufacture and deliver approximately 50,000 vehicles throughout the currently running half of this year.  If the company successfully delivers 50,000 vehicles this year, it will put total deliveries this year at 79,190, well below the low-end of the company’s guidance range for 2016.

Apart from this, Tesla is facing tough competition from BMW, as the luxury car-maker is working on its new forthcoming 3 Series that will be launched in 2018. Moreover, BMW is also working on a battery electric variant of the 3 Series. As per report from Britain’s Auto Express magazine, the electric 3 Series will comprise a 90 KW per hour battery pack. And that will prove to be a tough competitor for Tesla’s top models.

Amid growing competition, consistently failing to meet targets will cost Tesla in the short as well as long-run. Although Tesla’s run has been impressive till now as the company has shrugged off all the bear criticism, the EV-maker can’t continue failing to meet targets forever. Given the stock’s sky-high valuation, I think Tesla investors should be cautious about the company failing to meet its targets. Moreover, the highly competitive environment will further add to Tesla’s headwinds. For these reasons, I think Tesla is not a good buy right now.
Published on Aug 2, 2016
By Akshansh Gandhi

Copyrighted 2016. Content published with author's permission.

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