Tesla Motors (NASDAQ:TSLA) is very much a battleground stock these days. The company is sure to elicit a wide range of investor opinions spanning the entire spectrum. A lot of the company's future prospects hinge on the success or failure of the forthcoming Model 3, set to be unveiled at the end of the month. The Model 3 represents Tesla's shot at the mainstream market, starting at $35,000 before incentives.
On paper, that would position Model 3 in the entry-level luxury sedan market, which moved about 500,000 units in the U.S. last year. However, I believe that the Model 3's market opportunity is actually significantly larger, considering the company's demonstrated ability to attract buyers from lower-end markets.
I'm not the only one.
Word on the Street
On Friday, Bernstein put out a research note (via Barron's) discussing the Model 3's prospects. The bullish tone of the analysts was partially what drove Tesla shares higher that day. The analysts believe that Model 3 will serve as a sort of wake-up call for the auto industry, accelerating industrywide investments in EV technology. Incumbent automakers have already been developing EVs for a few years now, but Model 3 could dramatically increase those commitments.
"But with a mid-priced addition to Tesla's product mix, the company will no longer be competing just with the BMW 5- series and Audi A6. It will be competing with the Honda Accord and Toyota Camry."
That echoes my own sentiments precisely:
"All of a sudden, we're now talking about Model 3 potentially competing with the Camry and Honda Accord and other non-luxury sedans. Now that is a huge market (Camry and Accord alone sold a combined 784,742 vehicles in the U.S. in 2015)."
This is a massive market segment that we're talking about.
T-minus 11 days
The Accord and Camry have been brand-defining models for Honda and Toyota for years, thanks to a wide range of factors including reliability, affordability, and value retention. A big unknown is how Model 3 will score in these departments.
Tesla's Model S has already been putting pressure on Toyota's Prius, thanks to a large overlap in environmentally conscious customers. Meanwhile, Honda has been struggling with a variety of quality issues (Honda had to recall its brand new 2016 Civic just months after launch due to a major engine problem), and recently appointed CEO Takahiro Hachigo has vowed to fix some organizational problems within the company.
March 31 can't come soon enough.
Evan Niu, CFA owns shares of Tesla Motors. Evan Niu, CFA has the following options: long January 2018 $180 calls on Tesla Motors. The Motley Fool owns shares of and recommends Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.