Bernstein: Germans disrupt $TSLA, $TSLA too slow to fight back


Bernstein Research is one of the few analysts that truly know the car industry. They don’t just dissect balance sheets, they take whole cars apart to find competitive (dis)advantages. Bernstein thinks that the G3, Volkswagen, BMW, and Daimler, are about to roll over Tesla, and that supposedly quick-footed Tesla is too slow to do anything about it.

In a research report distributed today to customers, Bernstein analyst Max Warburton writes that German automakers, previously known as dismissive about the electric car thing, are having a change of mind. And change their minds they must. Tight EU 2020 CO2 targets were thought achievable only with lots of diesel cars. Suddenly, this does not look like a good plan. Suddenly electric is in, as the leverage provided by EV super credits helps to make up for the expected diesel shortfall. EU super credits are not like the Californian kind, where a few compliance cars, and an unused swap station make you look good in the eyes of CARB. In Europe, you will actually need to sell the EVs to make them count. However, come 2020, one EV sold will count as two towards the fleet average.

Warburton writes that the G3 now are making serious effort to electrification:

“They are working on their own versions of the Tesla Model S and Model X – with cars like the Porsche Mission E, Audi Q6 e-tron, BMW i5 and a Mercedes product (unnamed) all due in the next few years.“

Once Tesla is no longer alone in the luxury EV segment, will it be able to fend off the Germans? Warburton does not think so:

“Tesla is moving a lot faster than normal OEMs – but it probably isn’t moving fast enough to truly disrupt – having served up the ground-breaking Model S in 2012, it has since taken it almost 3 years to serve up a variant (the Model X) and its much discussed third model is highly unlikely, in our view, to launch on schedule (2017) or at the price point promised (US$35,000). This pace of development has given the existing OEMs the time to study Tesla, tear apart its battery and develop rivals.”

On the technology side, Tesla does not have an edge over its German rivals, says Warburton, fully aware that the vociferous Tesla-fans will be all over him. Tesla’s opened patents are not being used. Bernstein was told by a “very senior executive responsible for EVs” at a German OEM:

I cannot think of a single patent that is actually worth anything, or protects any technology that we don’t already have available.

As EVs are slowly going mainstream, Tesla hitches on autonomous driving as a differentiator. While large OEMs plod ahead in their usual deliberate and cautious way, Tesla rushed an untested Autopilot to market, and has the gall to call it a big betatest. Investor should be extremely aware of this, Bernstein says;

“The moves that Tesla is making – putting nascent technology on the road that the OEMs wouldn’t dare offer – is high risk. Elon Musk, speaking about Tesla’s Autonomous Driving technology recently, said it will “hopefully” not hit pedestrians and cyclists. Elon, as a pedestrian and cyclist, I “hope” you are correct. Investors need to hope he is correct too, as this is an industry where even slipping floor mats can lead to safety problems that cause reputational, regulatory and financial disasters (as Toyota has found out).”

Putting their hats as investment advisers back on, Bernstein thinks money might probably invested better elsewhere than in cars.

“Global growth is clearly slowing, with Russian and Brazilian car markets in severe decline and Chinese demand – perhaps the most critical determinant of industry profitability – also having suffered a setback. US market profitability has peaked. In this context, we believe industry earnings will soon decline. Buying autos this late in the global economic cycle is arguably dangerous.”


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