Who Will Win - Chevy Bolt or Tesla Model 3?

 

Elon Musk continues to pad his resume. In addition to founding Tesla Motors, the electric-vehicle pioneer, he has put a rocket in space through his SpaceX outfit. The group’s latest feat was landing one of those rockets on a drone ship in the Atlantic Ocean.

But Musk’s biggest challenge is still to come. Presales of Tesla’s (ticker: TSLA) Model 3, an electric vehicle priced for the masses, have reached a stunning 325,000, with customers placing a $1,000 deposit for the right to eventually pay $35,000 for the car itself. Trouble is, while Musk long ago proved himself a marketing genius, he has had more difficulty mastering the skill of building and delivering cars at scale.

Tesla has delivered just 120,000 cars in its 13-year existence, and its product launches have been plagued by delays. The company’s Model X sport-utility vehicle is only now reaching customers, despite an initial announced delivery date of 2014. Not to be deterred, Tesla recently boasted in a blog post that its Model 3 preorders “correspond to about $14 billion in implied future sales, making this the single biggest one-week launch of any product ever.”

The claim might well be true, but it was odd timing for such bombast. Just three days earlier, Tesla issued a rare mea culpa for what it called the “severe” parts shortage for the Model X. In a press release, the company cited its own “hubris in adding far too much new technology to the Model X in version one.”

Tesla delivered 14,820 cars in this year’s first quarter, below its earlier forecast of 16,000.

In describing the parts shortage, Tesla laid out the challenge of mass-producing cars: “The parts in question were only half a dozen out of more than 8,000 unique parts; nonetheless, missing even one part means a car cannot be delivered. Tesla is addressing [the] root causes to ensure that these mistakes are not repeated with the Model 3 launch.” Time will tell. Tesla has promised its initial Model 3 deliveries by late 2017, but it could take years to deliver all of the preorders.

Tesla walks a fine line in becoming a mass-market auto maker. “On one hand, if Tesla takes a less ambitious and adventurous path with Model 3, it would benefit by having an easier and quicker path to production,” wrote Barclays analyst Brian Johnson recently in a note to clients. “However, by doing so, it likely would create a less differentiated vehicle—a fair risk given the significant competition at that price point.”

Johnson rates Tesla Underweight, and argues that Model 3 delays would hurt the stock, which he thinks is worth $165, versus a recent $252.

“A delay in the Model 3 launch, and more importantly, challenges in the ramp, would challenge the true bull case for the stock—that [the company] can ultimately evolve into a mass-market original-equipment manufacturer,” wrote Johnson late last month.

The Model 3 has dominated automotive headlines in the past two weeks. The massive preorder speaks to the power of Tesla’s brand, but also reveals the strong demand for a reasonably priced electric vehicle with long battery range. The Model 3 has a range of 215 miles between charges.

WITH FAR LESS hoopla, General Motors ’ (GM) Chevrolet unit unveiled a similar car in January. Bolts may start trickling into dealerships in late 2016, although GM CEO Mary Barra recently told Barron’s that they won’t be widely available until early 2017. The Bolt will list for $37,500, before federal tax credits worth $7,500. (The tax largess theoretically applies to Model 3s, as well, but the credit will expire sooner for its buyers, since Tesla’s more expensive EVs have already used up many of the credits allotted to the company.)

“Tesla has made a lot of noise and created passion,” says Karl Brauer, a senior analyst for Kelley Blue Book and veteran industry observer. “But Chevy and GM will crack the real-world electric vehicle first. Theirs will be available not just months, but years, before Tesla’s.”

Given Tesla’s history, Brauer thinks the first big batch of Model 3 shipments could slip into 2018 or later. As those buyers wait, he says, Chevy could easily capture 10% of the Model 3 preorder base. He forecasts first-year Bolt sales of between 30,000 and 80,000, “and the low end of that is still a win for Chevrolet.”