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Could Tesla Motors Inc (NASDAQ:TSLA) End Up As The Kim Kardashian Among Automobiles?

Written by on December 11, 2014

Could Tesla Motors Inc (NASDAQ:TSLA) end up as nothing more than a marketing phenomenon with more hype than substance? After all, hype and business are practically twins.

While Tesla has lost more than 20% of its stock price and valuation in the past three months, it is still up more than 50% in the past one year. Tesla was only worth about $50 on April 26 of last year — more than 400% growth in less than two years.

Tesla And Its Discontents (or Uncertainties)

How can we know whether Tesla is a genuine success story or just a flavor of the season which will soon be consigned to the mists of time. Like DeLorean for example.

There remains much that is unpredictable about Tesla and things can pan out in different ways. Tesla might end up as the greatest industrial (or automobile) success story of the 21st century — this century’s GM or Ford. Or Tesla could end up like Shai Agassi’s Better Place. His dreams have certainly turned into smithereens.

Another uncertainty is the recent record drop in fuel prices to less than $2.70. Toyota Prius sales are certainly seeing a fall but the premium Tesla models such as the Model S may not see much of an impact from reduced gasoline prices as its rich buyers can well afford not to bother about whether gasoline costs $3 or $4 a gallon. A Tesla is more of a status symbol and a way to make a statement for them. But when the time comes to sell half a million Model 3 vehicles in a few years hence, Tesla’s cars will surely appear less compelling when consumers have loads of conventional models to choose from and cheap gasoline that does not pinch their pockets.

One of the unknowns is how long of a time lag there will be between the development of EV technology and its mass adoption. Other technologies — from televisions to cellphones and from airplanes to space exploration and even Antarctic exploration — have taken decades to ‘take root‘ so to say or become commonplace enough or be adopted by millions of people.

If the mass market adoption does not happen, Tesla will remain just a niche vehicle manufacturer for the wealthy — sort of like Ferrari, Porsche, Maserati, BMW 7-Series, Mercedes S-Class, and so on. The additional challenge being of course that BMW, Porsche and others already have their own EV options or will soon have one.

The recent deal-no-deal announcement with BMW showed how fluid the relationships in the EV industry car.

If the mass market adoption does occur, Tesla will go either of two ways:

  • Tesla will be the clear winner (or at least be one of the top three leaders) in EVs thanks to superior battery technology, cheapest cost of production and other ‘first mover’ advantages.
  • Tesla will find it tough to surmount the competition or take a beating as all the giants — GM, Ford, Toyota, Honda, and tens of other global auto giants — make that inevitable beeline into the EV industry and swamp the market with hundreds of EV models and leverage all their strengths in terms of a far superior dealer network, marketing and promotional budgets, service network and infrastructure and so on.

Then there is always the other possible green fuel tech in the form of fuel cell vehicles (FCVs) such as the Toyota Mirai which will see other FCV counterparts (and competitors) in due course.

Tesla’s Fate Hangs In The Balance

So many things have to go right — especially when the company is entrepreneurial in the way that Tesla is. Tesla needs a large customer base and Tesla needs to make products that will appeal to that specific customer base. Tesla certainly cannot afford to over-promise or become complacent. Finally, Tesla has to deliver on what it promises — be they the dates or years when new models are supposed to be launched or the price points at which people expect those models to become available.