Is the Tesla Just a Toy?

By Douglas A. McIntyre Updated Jan 13, 3:30PM EST · Published Jan 4, 6:38AM EST

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Tesla Motors Inc. (NASDAQ: TSLA) sold 17,400 cars last quarter. The number was disappointing. Several analysts pointed out that Tesla could not produce enough of its Model X sport utility vehicles (SUVs). Some people have waited for over a year to get one. Tesla did not say how many. Since supply is so small, the demand number may be as well. At a sales run rate that may not even hit 100,000 next year, Tesla models remain niche cars for the rich and, for the time, being nothing more.

Tesla CEO and founder Elon Musk has forecast his company’s sales will reach 500,000 by 2020. On a percentage basis, that is a surge from current levels. On an absolute basis, Tesla still will be a small car company in five years. Mercedes will sell 400,000 cars in the United States. Tesla will need to draw sales from around the world to even come close.

If the all-electric car business becomes a big market worldwide, which is a big if, Tesla management must already know that every major car manufacturer in the world is chasing it. Each has a stronger balance sheet than Tesla, more dealers, more product development and more marketing power. The risk to all the rest is the risk for Tesla. Cheap gas, hybrids and ever more efficient engines may crumple the all-electric car business, no matter how much firepower the industry brings to bear.
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Incidentally, Tesla faces a crisis of confidence with Wall Street as well. The company has not grown into its $31 billion market cap. Put into context, the market cap of General Motors Co. (NYSE: GM) is $55 billion. Depending on how much Toyota Motor Corp. (NYSE: TM) falters, GM may be the largest car company in the world in 2016, based on unit sales.

Tesla’s disappointing fourth-quarter numbers don’t tell how much demand the company has for its new SUV, as well as a future car that will be less expensive. Tesla has another year or two to prove whether it is a real company or just another tech fad that made noise before it disappeared.

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.