This article was originally published on The Market Mogul. Please read here.
On the back of many recent successes in optimizing its advanced electric powertrain for the Model S, Tesla Motors [NSQD:TSLA] has announced the release of the autopilot feature as part of Tesla Version 7 software last week.
This latest software update allows the Model S to use its unique combination of cameras, radar, ultrasonic sensors, and data to steer down the highway, change lanes, and adjust speed in response to traffic. Once you’ve arrived at your destination, Model S scans for a parking space and parallel parks on your command. In its announcement to its clients, Tesla said:
“Model S can’t make traffic disappear, but Version 7 software makes it a lot easier, safer, and more pleasant to endure.”
According to Tesla Motors, this release also features the most significant visual refresh yet of the digital displays for every single Model S around the world. The instrument panel is focused on the driver and includes more functional apps to help monitor your ride.
This might be our first glance into Tesla’s future
Experts are dubbing this the single most pioneering step into the future of self-driven electric vehicles. Elon Musk’s against-the-odds commitment to create and enhance technologies to steer humanity into the future of automotive engineering is at the core of Tesla’s mission.
According to Tesla, in October of last year the automaker started equipping Model S with hardware to allow for the incremental introduction of self-driving technology: a forward radar, a forward-looking camera, 12 long-range ultrasonic sensors positioned to sense 16 feet around the car in every direction at all speeds, and a high-precision digitally-controlled electric assist braking system.
With Tesla Version 7.0 software those tools can now deliver a range of new active safety and convenience features, designed to work in conjunction with the automated driving capabilities already available in Model S. This combined suite of features represents the only fully integrated autopilot system involving four different feedback modules: camera, radar, ultrasonics, and GPS. These mutually reinforcing systems offer realtime data feedback from the Tesla fleet, ensuring that the system is continually learning and improving upon itself. Autopilot allows Model S to steer within a lane, change lanes with the simple tap of a turn signal, and manage speed by using active, traffic-aware cruise control. Digital control of motors, brakes, and steering helps avoid collisions from the front and sides, as well as preventing the car from wandering off the road. The car can also scan for a parking space, alert drivers when one is available, and parallel park on command.
If that’s not enough, Tesla plans to continue to develop new capabilities and deliver them through over-the-air software updates, keeping customers at the forefront of driving technology in the years ahead.
The uneasy relationship between Tesla and gas prices
The general belief has been that gas prices have an inverse relationship with Tesla’s success. The simple idea is that people buy electric cars to save on gasoline costs. Hence, when prices take a plunge, their appetite to spend money on electric cars goes south with it. So with gas prices at record low, why would anybody buy an electric car? This means Tesla wouldn’t perform well. Let’s examine this view closely.
The common wisdom has been based on the underlying assumption that Tesla is just an electric car company; and this is where people have gone tragically wrong. You underestimate the promise of a company like Tesla at your own peril. Tesla Motors is no more just an electric car manufacturer. It is a company that is committed to inventing the future of commuting. There’s nothing off the table when it comes to Tesla’s vision of the future. As stated by the company last week, “While truly driverless cars are still a few years away, Tesla Autopilot functions like the systems that airplane pilots use when conditions are clear.” The next step is to develop completely driverless cars. This would have the future knocking at our door earlier than we expected.
That said, the skepticism of naysayers is understandable too. When we hear of plans of such futuristic endeavors from companies that primarily operate in unrelated business verticals and that have yet to launch a single commercially viable (electric) vehicle with self-driving capability, we feel unsure. When Tesla, on the contrary, says they are working on the car of the future, the claims hold some credence.
The bottom-line: Tesla is more than just an electric car company. This means that the inverse relationship between gas prices and Tesla’s performance has been based on a short-sighted view by analysts and common folks alike.
Secondly, the buyer behaviour is grossly misunderstood when it come to the sales of electric and plug-in hybrid electric vehicles (referred to collectively as plug-in vehicles or PEVs). The numbers serve to prove that people have had enough of the volatility in gas prices; they are keen to switch to a more predictable alternative. According to InsideEVs.com, 284,174 PEVs were sold worldwide till September of this year, compared to 320,713 in the full year 2014. This translates into an increase of 18.14% in average monthly sales from 2014 to 2015.
This growth trend despite the low gas prices points to customers’ growing preference for PEVs over gas-guzzlers. It appears that, to a limited extent, these customers are willing to ignore the falling gas prices in favor of embracing a cleaner and more secure energy future. The limit of this extent is something we need to see as the future sales trends for PEVs unfold amid sliding gas prices. However, it is also understandable that gas prices will not remain low forever and will go up; it’s anyone’s guess how soon.
Cost of owning an electric car
Another factor that is often overlooked is that the fall in gas prices is also partially offset by the reducing cost of driving an electric vehicle. In the developed economies, where much of Tesla’s customer base is, electricity prices have been stable for the last many years. To top that up, the technological advances in increasing the range and lowering the cost of building the second generation EV-1 battery have yielded incrementally positive results. For customers, this means better affordability of PEVs compared to traditional cars. Not to forget, customers now have an increased range of PEVs to choose from, up from 16 models at the start of 2014 to 24 now.
Is it a buy?
For strategic investors, all these developments might be signs that Tesla is after all worth their money—and patience.
With TSLA trading at $226.35 on NASDAQ, the stock exudes unmistakable bullish sentiment for the intelligent investor. Just two years ago, this time of the year in 2013, the stock was at $183.56, and touched a five-year high of $286.04 on Sep 4th2014. With a 12-month price target of $281, Wall Street analysts recommend a buy. Over the next five years, analysts expect Tesla stock to grow earnings at an average annual rate of 30%. This year, there is a forecasted earnings decrease of 156.60% over last year. Analysts expect earnings growth next year of 170.77% over this year’s forecasted earnings.
The actual reported earnings per share for Dec 2014 for Tesla was -0.96. For the fiscal year 2015, the consensus mean EPS is -2.46.
Tesla could be an average speculator’s nightmare. With strong appetite to attract funding for its R&D ambitions over the next five years, Tesla is set to go full-force into the development of better-range batteries and more efficient performance for Model S.
The challenge
No doubt the release of Tesla Version 7 software brings a fresh vibe for the optimists; the question is, would the positive sign actually translate into gains for the investors? With the launch of Model X, shareholders expected an increase in the share price. That didn’t happen.
Tesla is unlikely to be able to deliver as many cars this year as the automaker promised. Without being able to scale up the manufacturing capacity and its reliance on its sole factory in Fremont, California, some believe that the company will have trouble increasing manufacturing of Model X without impacting production of its favorite Model S. That said, with Elon Musk’s habit to prove the skeptics wrong, you never know what’s in the offing.
Photo credit: Raneko, Barney Moss
© Majid Kazmi 2015
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