Too Late For Tesla Motors to Set Up Shared-Mobility Business?

Thinking Highways
By Thinking Highways February 22, 2016 11:33

Too Late For Tesla Motors to Set Up Shared-Mobility Business?


Morgan Stanley says Tesla is far behind in on-demand car sharing sector

It was last year in August, when Morgan Stanley analyst Adam Jonas raised the target price on Tesla Motors Inc. (NASDAQ:TSLA) stock from $280 to $465, a 92% upside. The reason was a potential business model involving an on-demand ride-sharing venture poised to increase Tesla revenue threefold, by 2029.

 Mr. Jonas even named the potential ride-sharing venture, branding it Tesla Mobility. It was slated to compete with ride sharing apps like Uber and Lyft. Reasons to bet on the car maker include the fact that it is already developing pure electric vehicles (EVs), boasts superior connectivity through over-the-air software upgrades, and is a leader in autonomous driving technology.
Dubbed SHEAM – shared, electric, autonomous mobility by Morgan Stanley, car-mobility is a segment expected to gain immense traction in the future. Last year, during the third-quarter (3Q) earnings call, Mr. Jonas asked Elon Musk about Tesla’s plans to offer on-demand electric mobility service. Mr. Musk dodged the question with a smile, saying “quite a smart question.” He was then asked if shying away from answering was because of “competitive sensitivity.” To that, Mr. Musk replied: “And nor – I mean, nor is our strategy fully baked here. So for us to state what it would be – it’s not fully baked, so there’s no – we’d prefer to announce something when we think we’ve got the full story understood.”

Earlier this month, Morgan Stanley said although Tesla has great potential if it enters the shared mobility segment, other players have already found a foothold. Due to the existing competition, the sell-side firm then reduced its target price on the stock, to $333.

A Morgan Stanley analyst noted that over the last four to five months, several companies from the automobile and technology sectors widened their stake in the shared mobility segment. This is perhaps the foundation for the firm having adjusted its Tesla Mobility economic model, for a higher research and development (R&D) expense, and accelerated top-line deflation pace, leading to lower long-term operating margins, from 9.3% to 7.3%.

 Rising Competition in Shared Mobility

Tesla is different from traditional automakers because of its unique product and segment, i.e. fully electric luxury cars. The company has been dubbed an “industry disruptor,” but it will not be able to retain this title for too long, because industry peers are determined to exploit this niche. Ford Motor Company (NYSE:F), General Motors Company (NYSE:GM), and Volkswagen and its subsidiaries, Porsche, and Audi, are just some of the significant industry players that plan to launch long-range electric cars in the next four years.

In addition to automakers, even technology companies have shown interest in the industry. Alphabet’s Google has been in the news for testing driverless cars on public roads, while Apple Inc. (NASDAQ:AAPL) is also rumored to be working on an electric car project dubbed “Titan.” Battery companies such as LG Chem, SK Innovation, and Samsung SDI, are all expanding production capacities, since EV markets have become a lucrative opportunity for battery cells.

Competition from peers in the electric and autonomous driving sector can affect any plans Tesla has, to enter the shared mobility business. The car sharing proposal put forward by Morgan Stanley, has been adopted by other automakers, including General Motors.

Tesla will face more than just Uber

In November last year, General Motors filed a patent for its car sharing venture, Maven. Last Month, it announced having invested $500 million in car-sharing company Lyft, which was part of its plan to develop an “Autonomous On-Demand Network.” Given Lyft operates in more than 190 US cities, and has a 40% market share in San Francisco and Austin, it seems General Motors is on its way to making a grand entry in the shared-mobility arena. To fortify its position in the car-hailing sector, it has also acquired valuable assets and patents from car sharing company Sidecar Technologies.

GM boss Dan Ammann, said: “We see the future of personal mobility as connected, seamless and autonomous. With GM and Lyft working together, we believe we can successfully implement this vision more rapidly.”

 

Thinking Highways
By Thinking Highways February 22, 2016 11:33