Despite disappointing Model 3 sales, Tesla Inc (NASDAQ:TSLA) stock recently closed at $344.57 a share, up 10.4% since Jan. 2. TSLA is a very polarizing stock, and difficult to make sense of. According to the Wall Street Journal, analyst targets for the TSLA stock price range from $170 to $500.
Famed short-seller Jim Chanos thinks TSLA stock is worthless, while the venture capitalist Gene Munster sees TSLA as “the best performing large cap tech stock in the next five years.”
To get a better view on TSLA stock, one must take a look at its competitive advantages.
Last year, I wrote an article on one of these: Tesla’s battery supply chain. Should Tesla shareholders worry about cheaper Chinese batteries eroding Tesla’s cost advantage in battery manufacturing?
I wrote that this probably wouldn’t impact Tesla much, since it both produces and consumes electric vehicle batteries. A fall in battery prices would be more likely to hurt pure-play battery producers. It would help Tesla by speeding up the transition from gas-guzzlers to electric cars.
Another one of Tesla’s competitive advantages is its Supercharger network. Currently, Tesla boasts “1,130 Supercharger Stations with 8,496 Superchargers” worldwide. According to the company, it takes about 30 minutes to recharge your Tesla.
Competing on Charging Infrastructure
When it comes time to buy an electric car, one of the things buyers will consider is the car’s charging network. How many charging stations in your area are compatible with your car? How fast are these chargers, and how long does it take to recharge the battery?
If Tesla operates most of the charging stations in your region and offers the fastest chargers, you will be more likely to buy a Tesla.
Reuters recently reported that global automakers like Ford Motor Company (NYSE:F) are investing a combined $90 billion in electric car technology.
They also are investing in the charging infrastructure which electric cars will need in order to go mainstream.
Let’s take a look at some of the steps these firms are taking to compete with TSLA.
Ionity
Last November, several automakers announced that they intended to build a fast-charging network across Europe. This group includes Ford, Volkswagen AG (OTCMKTS:VLKAY), Daimler AG (ADR) (OTCMKTS:DDAIY), Bayer Motoren Werk (ADR) (OTCMKTS:BMWYY). Volkswagen subsidiaries Audi AG (OTCMKTS:AUDVF) and Porsche (OTCMKTS:POAHY) also are part of the group.
There will be 400 charging stations. Each will be capable of charging at a maximum rate of 350 kilowatts (kW), faster than Tesla’s top rate (145 kW). They hope to have this network, called Ionity, up and running by 2020.
According to Electrek writer Fred Lambert, “This is by far the most significant electric car charging infrastructure effort by any major automaker and a clear move to try to catch up to Tesla’s Supercharger network.”
Still, they’re behind Tesla. Lambert noted that Tesla already has 350 charging stations in Europe, while Ionity’s planned 400 stations will be completed by 2020. This is one of the props for the diversity of TSLA stock.
Volkswagen’s Electrify America
Volkswagen is also building charging infrastructure through its Electrify America subsidiary. As part of Volkswagen’s Dieselgate settlement, the company agreed to invest $2 billion in electric vehicle initiatives in the United States, including charging stations.
Volkswagen must spend $800 million of this in California, where the majority of U.S. electric vehicle sales from 2011 to 2016 took place.
In California, Volkswagen will install fast-charging stations capable of charging at a maximum rate of 320 kilowatts, adding 19 miles of range per minute. These stations will support multiple charging standards. This includes CHAdeMO, used by many Japanese automakers, and Combined Charging System (CCS), favored by their German and American rivals.
According to Jeff Nisewanger of Hybrid Cars, “Almost all existing non-Tesla DC charging stations support between 25 and 50 kilowatts in the United States so VW’s stations could support charging at up to three- to six-times faster when plugged into some future electric vehicles.”
Along major highways, Volkswagen will build a nationwide fast-charging network, consisting of 240 stations with 320 kW and 150 kW chargers. According to Electrify America, an electric car charging at 50 kW adds 3 miles of range per minute; one charging at 150 kW will gain 9 miles per minute.
That’s not all: Volkswagen announced in December that it would add 2,800 Level 2 chargers by June 2019. These chargers, which take several hours to recharge a car, will be placed at workplaces and in residential neighborhoods.
Tesla’s Response
Tesla isn’t resting on its laurels: maps on Tesla’s website show it is planning to expand the Supercharger network this year.
Currently, Tesla claims “1,130 Supercharger Stations with 8,496 Superchargers” worldwide, up from 884 stations in the second quarter of 2017. In September, Tesla set a goal of having 18,000 Superchargers up and running by the end of 2018.
These Superchargers will be needed as Tesla moves into the mass market with the $35,000 Model 3.
Tesla may be planning faster Superchargers. In a December 2016 conversation on Twitter Inc (NYSE:TWTR), Fred Lambert asked Elon Musk if the charging rate for the Supercharger V3 would be 350 kW.
In response, Musk tweeted: “A mere 350 kW … what are you referring to, a children’s toy?”
Does Elon Musk have something up his sleeve?
Impact on TSLA Stock
Will the expansion of charging networks by other automakers hurt TSLA stock?
These charging stations won’t pop up overnight; permits need to be obtained. It’s a gradual process.
More chargers will make electric vehicles more attractive to potential buyers and reduce their “range anxiety.” It will speed up the transition from gasoline cars to electric ones.
As I mentioned in my previous article, Tesla is burning cash, and the sooner this transition takes place, the better.
Although the Supercharger network is one of Tesla’s competitive advantages, it can’t be too critical, since Tesla has talked about opening it up to other vehicle manufacturers.
And Tesla owners will be able to take advantage of Volkswagen’s Electrify America network using Tesla/CHAdeMO adapters. These cost about $450.
Tesla’s main competitive advantage is its product quality, and this will determine the TSLA stock price more than anything else.
Tesla remains ahead in this area, with its cars recently scoring first place in customer satisfaction for the third year in a row.
But can Tesla remain on top as it moves to the mass market?
As of writing, Lucas Hahn did not hold a position in any of the aforementioned securities.
