Tesla Inc (NASDAQ:TSLA) is ramping up production of the most important product in its history: the Model 3. This is the car that’s designed to take the company from luxury niche to mainstream, and TSLA stock’s value reflects expectations that the Tesla Model 3 will sell in volume. But the current No. 1 selling electric vehicle just got a major redesign with longer range, autonomous driving technology and a new look.
The new Leaf from Japan’s Nissan Motor Co Ltd (ADR) (OTCMKTS:NSANY) is going to be tough competition for the Tesla Model 3, and next year is looking even worse, with Nissan promising to release an extended-range version.
Tesla Model 3’s Lofty Goals
Skyrocketing TSLA stock has made Tesla the world’s fourth-largest automaker in terms of valuation –and No. 1 in the U.S. — despite the fact that it sells a fraction of the number of vehicles that most competitors do.
As pointed out by Business Insider, in August TSLA stock put the company’s market cap at $58.7 billion, compared to $51 billion for General Motors Company (NYSE:GM). That’s despite the fact that TSLA sold 76,000 cars for annual revenue of $7 billion in 2016, compared to 10 million vehicles and revenue of $166.4 billion for GM. Oh, and GM also turned a $9.4 billion profit for 2016, while TSLA was $880 million in the red.
Much of TSLA stock’s value is based not on what the company has been doing with its luxury Model S and Model X vehicles, but the expectation that it will go mainstream with the Model 3.
That new electric car starts at $35,000 (before government rebates). It saw an initial 518,000 pre-orders and although 63,000 people changed their mind prior to launch, the tally has continued growing at the rate of 1,800 new pre-orders every day. CEO Elon Musk has been talking up the potential for Tesla Model 3 annual production to hit 700,000.
To get there, the Tesla Model 3 has to convince consumers to skip a growing number of electric and hybrid competitors, none more formidable than the Nissan Leaf. And the world’s top selling electric car to date is about to get a lot tougher to beat.
New Nissan leaf: Better Than Before, Same Price
Nissan released its Leaf electric vehicle in 2010. While Tesla’s Model S beat it in unit sales in 2015 and 2016, the Nissan Leaf remains the world’s best-selling electric car overall, with sales since its introduction nearing 300,000.
The Tesla Model 3 was poised to stomp the Leaf. Although the Leaf did have a $5,000 price advantage, the Model 3 more than doubles the Nissan’s 107 mile range, it’s packed with the latest technology (with the option of upgrading to Tesla’s Autopilot tech at extra cost) and features modern styling. Not to mention the cachet of the Tesla brand.
Nissan just threw down the gauntlet, though, announcing an all-new Nissan Leaf. Arriving in early 2018, the new Leaf gets a bigger battery, boosting its range to 150 miles. That’s still short of the Tesla Model 3’s 220 miles, but Nissan told Reuters that a longer range option of “more than 300 miles” will be offered in 2018. The new Nissan Leaf also gains advanced technology, including the option of ProPilot autonomous single-lane highway driving and self-parking. The car also gets a serious facelift making it look much sportier.
Despite the major improvements, the 2018 Nissan Leaf will remain priced at under $30,000 when it goes on sale in the U.S. next year. The top-end model starts at $32,490.
Sweetening the pot, those who reserve and take delivery of new Nissan Leaf are being offered high tech gifts like Apple Inc.’s (NASDAQ:AAPL) Apple Watch Series 2.
The Tesla Model 3 still has the edge in range between charges, although the extended-range Leaf that’s being promised will change that part of the equation. And the Model 3 has the Tesla name. But will that be enough to convince mainstream car buyers to choose the Tesla Model 3 over a cheaper, proven Nissan Leaf that now offers high-tech features like autonomous driving?
TSLA stock and its current sky-high valuation depends on it…
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.