Is Tesla Motors Inc (TSLA) Mobility A Future Prospect Or Morgan Stanley’s Fantasy?

I believe that Morgan Stanley’s projections of Tesla entering another industry look more like a fantasy than a future prospect Shared mobility, an emerging concept comprising of shared transportation services among users, has been buzzed in recent weeks, following a report by Morgan Stanley’s Adam Jonas.

Mr. Jonas raised the price target for the disruptive electric vehicle (EV) company, Tesla Motors Inc (NASDAQ: TSLA), from $280 to a Street-high of $465 on hopes that it will enter the revolutionary share-mobility market and lead it.

Mr. Jonas believes that the company could triple its revenue base by 2029, following a commercial introduction of the autonomous car-sharing business in 2018.

While the company’s premium EV, the Model S, already incorporates autonomous features, such as auto-steering for highways; the analyst thinks that it is the only tech company that has all the attributes to lead the unexploited industry. Furthermore, the research firm foresees Tesla releasing the first version of the shared-mobility app within the next 12 to 18 months.

Tesla has never publicly shared any such plans. However, the EV giant, especially its superstar CEO, Elon Musk, has made it a habit to surprise the Street. Therefore, if Tesla actually comes up with such business plans in the coming years, we would not be surprised.

There are plenty of Tesla bulls in the market, including Stifel’s James Albertine and Jefferies’ Dan Dolev, who have assigned $400 and $360 price targets on Tesla stock, respectively; however, Mr. Jonas’ projections of Tesla entering another industry look more like a fantasy than a future prospect.

The analyst’s assumptions are mostly based on a conference call with Mr. Musk, which took place after Uber’s Travis Kalanick said that he would purchase all of Tesla’s 500,000 vehicles in 2023 if they’re autonomous. Mr. Jonas asked the Tesla CEO if the company is considering using the business idea for itself; upon which Mr. Musk said it was indeed an “insightful question” but that he shouldn’t answer it.

Tesla Already Has Plenty On Its Plate

While Morgan Stanley’s research team is waiting for Tesla Mobility’s first app, a name coined by Mr. Jonas, we think Tesla already has plenty on its plate to consider entering the shared-mobility industry.

Firstly, Tesla has already undertaken massive expansion plans that include production ramp of its first sport utility vehicle (SUV), the Model X, construction of the $5 billion Gigafactory, preparation for battery production, strengthening its global charging network, and rolling out new stores.

Tesla Mobility is a business model that we think Tesla isn’t in a position to consider for at least the next five years, as it is already working on the aforementioned plans, its operating expenses are too high, and it has cash flow issues. Mr. Musk has said that the company wouldn’t be profitable unless it sells 500,000 vehicles annually by 2025.

500,000 vehicle deliveries are the 2025 goal that is purely dependent on Tesla’s much affordable, compact EV, the Model 3, which is slated for 2017-end and reliant on the under-construction battery producing factory. Due to cash flow problems and increasing operational costs, the company recently issued 3.1 million shares worth $738.3 million and opened up a $500-750 million credit line to support its existing growth plans.

The chart above shows that Tesla’s cash and cash equivalents have been rapidly depleting, since the second quarter fiscal year of 2014. During 1QFY14, the company raised $2.3 billion through convertible notes offerings.

Since its IPO in July 2010, Tesla has been largely unprofitable because it is still young in the industry and trying to do things way ahead of its time. Moreover, increasing expansionary measures are widening Tesla’s net losses sequentially and rapidly burning the company’s cash.

Known For Setting Over Ambitious Goals

While Tesla is known to be one of the most technologically advanced companies in today’s world, it is also known for not meeting its deadlines and setting ambitious goals in time. It is widely believed that Mr. Musk’s team has failed to deliver overambitious promises in time. Model X is the biggest example of Tesla’s inability to meet deadlines.

The SUV was initially unveiled in early-2012 and its production was expected to start by 2013-end. However, due to various issues related to the manufacturing of the vehicle, such as unique falcon-winged doors and back seating, the vehicle’s launch date has been delayed several times.

Although Mr. Musk even went on record, saying that the SUV is probably the world’s most difficult automobile to build, Teslamaniacs have been enthusiastically waiting for the falcon-winged doors vehicle, which is evident from the hefty over 30,000 pre-launch reservations.

The EV giant reduced its full-year delivery outlook from 55,000 vehicles to a range of 50,000-55,000, earlier this month, mostly due to challenges related to Model X production that could affect the productivity of its flagship vehicle, the Model S.

Apart from the Model X delays, Mr. Musk also promised that the upcoming version of autopilot software will allow the owners to summon the car to their private property; however, the recent software update that the company sent to the owners for beta-testing didn’t include the feature.

Going Against The Odds

Business Finance News believes that the possibility of Tesla, which is already facing issues with its cash flow and operating costs, unveiling another business segment in such a short period of time is highly unlikely or more likely an illusion. However, considering the reputation of the charismatic, visionary CEO, there is a probability that the EV giant might surprise us like it has done time and time again.

We shouldn’t forget the fact that Tesla has made electric cars a reality and has become an inspiration for many other traditional automakers that wish to enter the promising industry. While we are aware of the fact that Tesla can make impossible possible, we also know that Tesla does not have time to become the new Uber.

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