Now that much of the Model 3 hype fueling Tesla Motors Inc (TSLA) has died down, it’s worth taking another hard look at the company. Some consumers have already complained about glitches in TSLA vehicles’ software, among other issues, which leads to the question: Can CEO Elon Musk successfully attract the attention of the mass market?
Tesla stock has evolved in two complementary commercial directions. There’s the core “electric car” proposition as well as the ultra-luxury, space-shuttle-esque designs that made the initial Roadster such a sensation when it launched back in 2008.
Those market opportunities converge when Musk caters to wealthy early adopters who care about the environment as much as they want a thrill, but over the last decade it has really been more about the thrill. People who can afford these top-of-the-line cars have bought them for the instant G-force acceleration, the eerie silence of the engine and the futuristic glow of the dashboard.
What About TSLA Stock?
But from an investor standpoint, it’s important to recognize that every elite vehicle that has rolled off the assembly line thus far represents Elon Musk’s efforts to work toward the mass market.
With the much more affordable Model 3 on the horizon, the company is at a crossroads. It can remain a luxury manufacturer and keep selling about $5 billion worth of elite cars each year — or it can open up to mainstream car buyers, potentially doubling its share of the global market and ramping up from there.
The math argues for the Model 3 and the mass-market electric car. Working toward that wider audience opens up a lot of opportunities, as more electric cars on the road means more demand for charging stations and other infrastructure and broader acceptance of the technology. All of this will feed back into TSLA’s bottom line as the company continues to expand.
For any of that to become reality, Musk must remove any doubts about the futuristic technology running his cars. We all remember the media furor when one TSLA car caught fire a few years back. The company is bending over backwards to make sure that doesn’t happen again while also growing its fragile sliver of market share.
The challenge is the delicate balance of timing and resources: TSLA wants to be the first mass electric vehicle manufacturer, but rushing the product line only results in shaky quality control.
Now that Ford Motor Company (F) just announced plans to release a long-range electric car to compete with TSLA, the competition is heating up. Musk has already started to take shortcuts, borrowing components from the elite Model X and S and passing them down to the Model 3.
But if TSLA stock can’t spin out a vehicle that is as safe and reliable as it is “cool,” there’s no chance of the mass market latching on.
I think Musk recognizes this, which is why the company has been quick to address damage control. The stock has faltered recently as consumer doubts began to swirl, and other car companies will start to take advantage of their own brand loyalty by shoehorning their way into the electric car market.
At the end of it all, if Tesla stock wants to stay on top, it’ll have to innovate in a way that speaks to that general consumer.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
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