Tesla’s survival facing new $50 billion threat
Tesla has been put on notice.
The $50 billion merger between Fiat Chrysler and Peugeot owner PSA Group marks the beginning of the end of Elon Musk's dominance in the electric-vehicle space, according to the head of one private-equity firm.
The deal creates the fourth-largest automaker by sales and a “fierce competitor” in the burgeoning EV market that is currently dominated by Tesla, according to Eric Schiffer, CEO of the Los Angeles-based private-equity firm Patriarch Organization.
He says the cost to be environmentally and electrically focused is “immense” and that a “blistering degree of competition” over the next five years will create “one of the greatest dangers” to Tesla’s survival. Eventually, Schiffer believes Tesla will be “forced to sell.”
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| TSLA | TESLA INC. | 357.09 | +11.93 | +3.46% |
Tesla's current market capitalization is $57.84 billion, down from its record peak of $64.75 billion on August 7, 2018, according to Dow Jones Market Data Group. The company continues to be a target for short-sellers, those who bet the shares will fall.
Even so, the outlook for the industry and Tesla looks promising.
The global EV market, which is about 4 million units in 2019, is expected to grow to 21 million units by 2030, according to a study from Deloitte.
Tesla currently commands 75 percent to 85 percent of the electric-vehicle market in the U.S., according to CleanTechnica. A big part of Tesla’s success in the U.S. is the Model 3 sedan, which itself accounts for 60 percent to 70 percent of all electric-vehicle sales in the country.
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“Right now it's kind of Tesla and then there's everyone else,” Dan Ives, managing director at Wedbush Securities, told FOX Business, adding that “no one's really created a competitive threat to where they are in terms of EV and the supercharged network in the US.”
But Ives thinks Tesla could succumb to pressure from the competition in other markets, specifically China and Europe, given its "core DNA with Peugeot.”
Tesla controls 22 percent of the European EV market while Renault, part of the PSA Group, owns 9 percent of the market, CleanTechnica says.
Tesla has “an extremely high retention rate” so it’s critical for competitors to steal market share over the next 12 to 18 months, according to Ives.
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It has proved difficult to survive in the electric-vehicle space.
Last month, Tesla reported a third-quarter profit of $143 million, but that was after losing $2 billion last year and money in both the first and second quarters of this year. Even so, that’s proven to be far better than a lot of the competition.
Tesla’s return to profitability came as other rivals have succumbed to the whims of the market.
Dyson shut down its aspirations for electric vehicles while Nio, often referred to as the “Tesla of China,” was forced to raise $200 million from CEO William Li and the Chinese gaming giant Tencent, one of its largest shareholders. The Chinese automaker has burned through cash as it has struggled to keep up with its delivery targets and suffered through battery production issues.
“For years, investors have been concerned that Tesla must eventually face a wave" of competing all-electric vehicles that would "substantially erode its market and competitive position,” wrote Morgan Stanley analyst Adam Jonas. “Here we are more than seven years after the Model S launch and, while there have indeed been new product introductions from the likes of Jaguar, Porsche and VW, the state of play in the market remains fairly peripheral."
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And while billion-dollar mergers make a splash, they don't always produce the results intended, analysts say.