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Morningstar | Tesla Moves to Improve Its Governance With Board Changes but To Us It's Still Elon's Board

Tesla has a chance to be the dominant electric vehicle firm and is a leader in autonomous vehicle technology, but we do not see it having mass-market volume for at least another decade. Tesla's product plans for now do not mean an electric vehicle for every consumer who wants one, because the prices are too high. The Model X crossover released in late 2015 starts at about $90,000, but will average much higher with options. The Model S sedan's starting price is $85,000. The Model 3 sedan starts at $35,000 and rolls out gradually through 2019 in other variants in foreign markets. Prices are before any tax credits, and the U.S. federal tax credit stops at the beginning of 2020. Tesla is building its gigafactory--a lithium-ion battery plant under construction in Nevada--to help it produce at least 500,000 vehicles at its sole assembly plant in Fremont, California. CEO Elon Musk said in 2018 that total output in 2020 could be as much as 1 million vehicles, but that will not all be in California. A Shanghai plant will open in late 2019 and be wholly owned by Tesla. We are skeptical of the 1 million number, given Tesla sold about 245,000 vehicles globally in 2018. Even if demand exists for these vehicles, this quantity is small relative to total global auto production, which should reach 100 million units in the next few years. Thus, we think global mass adoption of pure electric vehicles is still a way off.In the meantime, Tesla will have growing pains, possibly recessions to fight through before reaching mass-market volume, and increased its debt levels by acquiring SolarCity to become a vertically integrated sustainable energy company. It is important to keep the hype about Tesla in perspective relative to the firm's limited production capacity. Tesla's mission is to make EVs increasingly more affordable, which means more assembly plants must come on line to achieve annual unit delivery volume in the millions. This expansion will cost billions a year in capital spending and research and development and will be necessary even during downturns in the economic cycle.