Can The Rising Chevy Bolt Dent Tesla Motors Inc (TSLA) Stock In The Long-Term?

Does Tesla Motors Inc (NASDAQ:TSLA) need to take the homely Chevy Bolt seriously? Can it impact TSLA stock in the long run? Let’s take a look.

General Motors Company (NYSE:GM) mass-produced plug-in Electric Vehicle (EV), the Chevy Bolt, continues to win accolades from industry experts. The Bolt has won the Car of the Year Award, the third top honor for the breakthrough car. The Chevy Bolt had already won the Green Car of the Year and the Motor Trend Car awards in 2016.

Tesla Motors Inc (NASDAQ:TSLA) investors have been mostly dismissive of the homely Bolt, arguing that it can’t hold a candle to the sexy Model 3. But the fact that the Bolt is already being widely recognized as a leader in its category suggests that Tesla fans need to sit up and take notice.

Tesla shares have kicked off the year on a strong note, rising 18.17% higher YTD. A lot of those gains have come after Tesla managed to hit a rare home run by activating the Gigafactory within the stipulated deadline.

Tesla YTD Share Returns

Source: CNN Money

Aggressive Pricing Not Sustainable Over The Long-term

The Bolt lacks in hype and styling but it more than makes up for it in performance, pricing, and more crucially, availability. With a driving range of 238 miles, it comfortably pips the Model 3 which has a range of 215 miles. Further, at a price of 30K after tax breaks, it’s considerably cheaper than the Model 3, quite a strong selling point in a price-conscious market segment. Indeed JPMorgan has placed a Sell rating on TSLA with a $180 price target (26% below the current price) citing the risks posed by aggressive pricing by ICE (Internal Combustion Engine) manufacturers:

“We expect it will become increasingly more difficult for Tesla to profitably compete against an improving array of electric vehicles from automakers which are pricing such vehicles with the aim not to turn a profit but rather to sell in sufficient volume to subsidize the rest of their more lucrative portfolios of internal combustion engine vehicles from a regulatory compliance perspective.”

General Motors Company (NYSE:GM) says that it stands to lose $8-$9K on each Chevy Bolt it sells as it tries to pacify regulators in nine states who demand that auto manufacturers sell some non-polluting vehicles if they want to do business there. Although GM can easily take the loss at the expected sales levels, things could get dicey in the long-term, as state rules tighten and require more zero-emission vehicles on the roads. There are estimates that sales of zero-emission vehicles will increase five-fold to reach 15.4% of total vehicle sales by 2025.

A California law specifies that greenhouse gas emissions should be 40% below 1990 levels by 2030, a requirement that would see sales of plug-in hybrids, ZEVs, and fuel-cell cars shoot to 40% of overall auto sales mix, up from 3% currently. It is, therefore, going to become increasingly hard for companies like General Motors Company (NYSE:GM) to continue heavily subsidizing their EVs and pose a competitive risk to Tesla. Also, how far these Tesla fighters (1) can take the fight to Tesla needs to be seen.

Bolt Could Steal Some Model 3 Reservations

Perhaps the biggest reason why Tesla investors need to pay more attention to the Bolt is the fact that it started shipping in late 2016, almost a full year ahead of when we expect the first Model 3s to hit showrooms. The first Chevy Bolt shipments are already on their way to California and Oregon. Meanwhile, Model 3 will not start shipping until late 2017 or early 2018, depending on which analysts you ask.

The precise number of Mode 3 pre-orders is not publicly known, though a Tesla fan site has an enigmatic Model 3 counter (2) that places the figure at over 518K. It’s not entirely inconceivable that Tesla might end up losing some of those reservations to its more humble rival, especially if the company continues its long-standing tradition of consistently failing to meet major delivery deadlines. Tesla’s last missed delivery deadline could hurt its Q4 earnings as well.

Tesla Motors Inc (NASDAQ:TSLA) though, has lately been demonstrating that it can meet its aggressive milestones within deadlines. First off, activation of the Gigafactory means the company will be in a position to build battery packs for at least some of the Model 3 reservations. Availability of lithium-ion batteries around the world is quite constrained and can act as a major limiting factor for Tesla, whose goal is to ship 500K Model 3s by 2018. Further, buying battery packs from a third-party supplier would make it hard for the company to sell the Model 3 at 35K without incurring serious losses. Unlike ICE manufacturers, Tesla needs to demonstrate to investors that it can sell its vehicles profitably.

The fact that Tesla was able to double the size of the Gigafactory in just six months offers hope to investors that it’s well positioned to meet its lofty goals.

Investor Takeaway

Tesla Motors Inc (NASDAQ:TSLA) investors should recognize the threat posed by the Chevy Bolt and other EVs from ICE manufacturers. The fact that there’s still quite a lot of uncertainty regarding the exact shipping date for the Model 3 will probably entice some buyers with a Model 3 reservation to switch to the more humble Bolt.

But given the fierce loyalty of Tesla fans, the scale of migration is not likely to be big enough to cause the company any sleepless nights. Model 3 fans placed their reservations knowing full well that delays might occur, and are probably willing to wait for as long as it takes. The good part though is that Tesla has already commenced production of battery packs in its Gigafactory. This removes a major risk for TSLA stock.

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The article Can The Rising Chevy Bolt Dent Tesla Motors Inc (TSLA) Stock In The Long-Term? originally appeared on amigobulls.com. Watch our analysis video on TSLA

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Additional Links:

(1) http://amigobulls.com/articles/tesla-stock-can-gm-and-toyota-hurt-tesla-motors-inc-tsla?&ref=im

(2) http://model3counter.com/