By Tim Higgins
As longtime auto makers try to sell investors on their visions
for the future, they keep hearing the same thing: What about
Tesla?
Investors increasingly see the future of the car as electric --
even if most car buyers haven't yet. And lately, those investors
are placing bets on Tesla Inc. to bring about that future versus
auto makers with deeper pockets and generations of experience.
Tesla's stock is up 91% this year through Friday. That rise has
been attributed to Chief Executive Elon Musk showing some
leadership stability and executing on some promises, including two
consecutive quarters of profit. And also to trader
overexuberance.
But investors and analysts also say it reflects a view that the
moment for electric vehicles is arriving.
Tesla, to a large extent, has become the purest proxy for
betting on electric vehicles. Early on it ditched plans for a
hybrid electric car -- the kind of part-gas, part-electric
half-measure favored by traditional auto makers for improving fuel
efficiency. More than just selling an electric car, Mr. Musk has
crafted an aura around Tesla with a stated mission of accelerating
the world's transition to sustainable energy.
The excitement around Tesla's stock signals the market believes
the company will be "the sole winner" in the move to electric
vehicles, Brian Johnson, an analyst for Barclays, told investors in
a note this month. He also compared the stock run-up with the
overvaluations of the tech boom of the 1990s.
When Tesla on Thursday announced it would issue new shares to
raise more than $2 billion, shares rose more than 4%. The money
gives Tesla more financial muscle to fund models and factories.
Meanwhile, top executives at rivals such as General Motors Co.,
Ford Motor Co. and Fiat Chrysler Automobiles NV in recent days have
faced pointed questions about the Silicon Valley electric-car maker
as Tesla's market value continued its meteoric rise.
When Tesla was founded 16 years ago, the idea of electric cars
competing, let alone replacing gas guzzlers, seemed far fetched.
But more recently, falling battery prices, pressure from
governments such as China to reduce pollution through a shift to
electric vehicles and an increasing focus on climate change more
broadly have heightened expectations that adoption might be
attainable.
Tesla wasn't the first car maker to embrace electric cars. GM
seemed to be cutting a new path in the 1990s with the development
of the EV1 only to be cast as a villain when it killed off the
two-door car years later to the anger of loyal California
customers.
As a startup, Tesla focused on more than just swapping a
gasoline engine for an electric motor. It developed expertise in
software and battery technology and pioneered a direct sales model
(skipping franchise dealers) that once seemed largely impossible in
the U.S. It made costly missteps, too: Its extreme focus on
automating the assembly line and battery factory almost led to the
collapse of the company in 2018 as it worked to untangle the
mess.
But many investors have been willing to overlook the fits and
starts, especially as 100-year-old car giants have struggled with
their own existential challenges -- bankruptcies, fatal recalls and
emissions-cheating scandals.
Tesla's Model 3 compact car, which fueled its 50% delivery
growth last year, has helped show a market exists for fully
electric cars, and analysts predict Tesla could turn its first
full-year profit this year.
Tesla global deliveries last year represented a fraction of
world-wide new vehicle sales but almost one in four of
full-electric deliveries. Supporters believe that means there is
exponential growth ahead, while others question if customers really
want EVs. Fully electric vehicles represented just 1.9% of sales
last year while researcher LMC Automotive predicts that share could
grow to 11% in 2027.
All that has led senior executives at traditional auto makers to
race to put Tesla-killers on the road in coming years. Volkswagen
AG's luxury-car brands Audi and Porsche and GM's GMC brand showed
off electric vehicles on Super Bowl Sunday. Ford, BMW AG and others
also plan electric-vehicle model releases this year.
"If Tesla proves to be profitable...we think this removes one of
the biggest impediments for why legacy [auto makers] were hesitant
to go 'all in' on EVs," Adam Jonas, a Morgan Stanley analyst, wrote
in a note to investors last week.
Tesla rivals first tried to compete with modest models. The
Chevrolet Volt and Nissan Leaf targeted buyers who executives
believed would be motivated by environmental concerns or desires
for gas savings. Mr. Musk bet performance and cool would win
out.
Now the industry is moving in that direction, too, offering
sport-utility vehicles, high-end sedans and sports cars. Car
companies have announced $225 billion in electric-vehicle
investments by 2023, according to AlixPartners LLP, a consulting
firm. So far, however, none of the offerings from GM and
Volkswagen's Audi and Porsche have ignited the same kind of
excitement or sales as Tesla's Model 3.
Even when legacy car makers embrace electric vehicles, they can
stumble. Daimler AG, the maker of Mercedes-Benz, blamed part of its
fourth-quarter loss on the challenges and costs of switching over
to electric-powered cars. The problem for electric cars remains
similar to what it was back with GM's EV1: battery cost. Tesla has
found ways to reduce those costs, but it is still a battle for
all.
Following another disappointing quarter earlier this month, Ford
CEO Jim Hackett tried to assure skeptics that he was preparing the
auto giant for the future. "Tesla's now worth over 5x the market
cap of Ford," an analyst pressed him. "What's the message the
market's sending Ford?"
Write to Tim Higgins at Tim.Higgins@WSJ.com
(END) Dow Jones Newswires
February 17, 2020 05:44 ET (10:44 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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