As automakers fireball their way towards electric vehicle (EV) offerings, they are simultaneously less than eager to confront the waves of rising EV adoption upon traditional internal combustion engine (ICE) vehicles’ overall worth. Where does Tesla Motors Inc (NASDAQ:TSLA) factor into the shift from ICEs over to EVs?
For Berenberg analyst Alexander Haissl, “The most significant change in automotive powertrain technology since the invention of the car, and potential obsolescence of combustion technology is likely to drive a historical residual value decline that is significantly more severe than the industry expects.”
When glancing at a context rife with aggressive EV offerings, the analyst anticipates values of combustion-engine-powered cars could dip by over 20%, particularly considering EVs are 24% more cost-effective from an operational standpoint than traditional ICE vehicles.
Haissl explains, “Two key factors behind the cost differential are the significantly lower fuel and maintenance costs, as well as a continued decline in battery prices (c60% by 2020E if Tesla targets are achieved; GM has set the same targets by 2022E). With EVs offering a significantly more attractive solution for the consumer, we believe ICE prices will be under pressure and likely adjust to match the cost (TCO) of EVs – we see the potential price pressure equivalent to the estimated cost differential (c$5,500 or 24% of ICE vehicles purchase price).”
Compared to an ICE, an EV outclasses its counterpart from a maintenance and repair perspective, thanks to a minimal sum of moving and consuming parts in comparison. The analyst projects maintenance and repair costs at c35% under when juxtaposed against EVs at comparable prices.
If battery costs decline on back of better technology, particularly with Tesla calling for $100/kWh by approximately 2020, Haissl calculates battery costs could step back to $2,400, marking a c60% drop from levels at 2015. “We believe battery cost reductions will likely translate into lower purchase prices for EVs,” the analyst adds.
However, as the NADA used car guide found back in April 2015, electric vehicle price tags have not been anything to admire, with soft demand for used EVs stemming from issues from both range and technology perspectives. Moreover, the analyst highlights better efficiency coupled with less steep gas prices yielding headwinds for EVs as opposed to gasoline-powered cars.
First year-old electric vehicle retention swims at a vast range, and Tesla Model S leads the pack at 83.1%. Meanwhile, gasoline-powered car retention rates range between 62.7% and 70.1%. A similar situation arises when assessing two-year old models, where Tesla Model S reigns king once again at 71.1% retention. When looking into three-year models, Tesla Model S “meaningfully” beats the rest of its EV competition with a retention rate of 57.2%.
For now, the analyst remains sidelined on the electric car giant, reiterating a Hold rating on shares of TSLA with a $193 price target, which represents a 275% increase from current levels.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, one-star analyst Alexander Haissl is ranked #3,415 out of 4,273 analysts. Haissl has a 0% success rate and forfeits 18.0% in his yearly returns. When recommending TSLA, Haissl earns 0.0% in average profits on the stock.
Most analysts agree with Haissl when it comes to a neutral standpoint on the giant, as TipRanks analytics exhibit TSLA as a Hold, with 3 analysts bullish on the stock, a majority of 7 analysts sidelined, and 4 bearish on Tesla. With a return potential of nearly 11%, the stock’s consensus target price stands at $213.80.