Notable Barron's Tesla Article Highlights:
The challenge is battery cost. The Morgan Stanley analyst assumes that it
can drop by half, from $400 to $200 per kilowatt hour, and that consumers will
accept a driving range below 140 miles. But the U.S. government and industry
researchers say the cost performance of batteries is coming down slower than
hoped. At GM, Director of Global Battery Systems Bill Wallace believes that
battery-capacity costs can improve by about 20% in the next few years, with
longer odds of saving 40% if new technologies pan out in five years.
Before ending our interview, Musk said that improvements will cut the cost
of the Model S's battery to $10,000-$12,000.
Musk will succeed at establishing Tesla as a valuable brand, even if it
winds up confined to the luxury bracket of the Model S and its crossover cousin,
the Model X. Tesla stock, therefore, has a floor at whatever price a giant like
Daimler might pay to buy the company. But an acquirer wouldn't wildly overpay
for the cash flow expected from those luxury lines. Morgan Stanley sees Tesla's
free cash flow hitting $400 million in 2016 the year before Gen III's expected
launch. A Harley-Davidson multiple on that cash flow 10 times would support a
Tesla stock price in the $30s. A BMW multiple of three times would point to a $
10 price. Those levels surely undervalue Tesla and Musk. We suspect there'd be
plenty of buyers at $50.
The mass-market segment will be crowded by the time Tesla plans to deliver
Gen III. Chevy just introduced GM's first all-electric car, the Spark EV, at
$20,000 (after the $7,500 tax credit). Consumers seem cool to paying more
for an electric vehicle with a driving range that's a fraction of an internal-
combustion model's. Disappointing demand drove price cuts last month on Honda's
Fit EV and Nissan's Leaf. The category-leading Leaf sold fewer than 10,000 units
last year.
We're sure Musk could have told us why potential buyers of affordable
electrics still see internal-combustion-powered cars as a cheaper, more
convenient choice.
