Tesla got a big jump on the competition in the battle to create the perfect electric car with driverless capabilities. More escapades like the company's going-private saga, however, could provide the opening other companies need to close the gap.
After nearly three weeks of drama, Tesla (TSLA) founder and CEO Elon Musk announced in a blog post Friday that he had changed his mind about taking the electric-car maker private. Apart from any lingering SEC investigations, that chapter in Tesla's story appears closed, turning the focus back to the fundamentals of its business: manufacturing and selling battery-powered vehicles.
Alex Wong/Getty Images
And that can't happen soon enough. Canaccord Genuity analyst Jed Dorsheimer argues that Tesla risks ceding the future autonomous driving market to competitors. In an increasingly competitive market, Tesla will need to devote resources and attention to developing its technology. Tesla still has a five- to 10-year head start over new entrants in terms of brand awareness and capabilities, but as its sideshows take center stage, better-funded rivals could make inroads. For Dorsheimer, that represents the greatest risk to Tesla's potential.
"A series of self-inflicted problems could open the door for new entrants with greater financial backing," Dorsheimer wrote, noting Toyota Motor's (TM) recent $500 million investment in Uber to develop driverless vehicles. General Motors (GM), Ford Motor (F) and other automakers are also devoting considerable resources to new electric vehicles.
In the meantime, Tesla is growing more cash-constrained. Dorsheimer, who rates Tesla at Hold, assessed the company's sizable debt-repayment requirements in a report Tuesday morning: "With $2.2B in cash at the end of Q2, Tesla only has enough cash to maintain operations for another six to nine months at its current rate....With a $230M tranche due in November 2018 at $560/share and $920M due in March 2019 at $360/share, Tesla will need to secure profitability by the end of the year to maintain solvency."
Going forward, investors will be watching whether Tesla hits its announced target of producing 50,000 to 55,000 Model 3 sedans in the third quarter, including 6,000 per week by the end of August. Tesla must hit that rate of production to survive, Dorsheimer says. Thanks to the distractions caused by the going-private saga, Dorsheimer trimmed his estimate for Model 3 production in the quarter to 48,000 units from 52,000. He decreased his price target on the stock as a result, from $336 to $316 - approximately where it trades today.
Sign up to Review & Preview, a new daily email from Barron's. Every evening we'll review the news that moved markets during the day and look ahead to what it means for your portfolio in the morning.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
