Tesla’s dominance in the U.S. battery-electric vehicle market is facing a growing threat after burgeoning rival Rivian scored a $1.3 billion funding round, raising its 2019 haul to $2.8 billion.
The money is twice what Morgan Stanley forecast for Tesla’s fiscal-year 2019 capital expenditures and will make Rivian a “serious" competitor.
“Tesla may have a big lead today, but we expect this to change over time,” a team of New York-based Morgan Stanley analysts led by Adam Jonas wrote in a note sent to clients on Tuesday.
The analysts say Rivian’s cash haul may be bigger than Ford and General Motors’ combined spending on battery-electric vehicles in 2020 and enough to build a gigafactory in a low-cost country. It’s also enough money to build two or three new models of electric vehicles.
Tesla controls about 80 percent of the U.S. battery-electric vehicle market, but Morgan Stanley says its current position is “unsustainable long term” and expects a start-up with access to talent and capital to provide the “next serious competition.” The firm’s analysts also see increased inroads from legacy carmakers.
One such threat is the $50 billion merger between Fiat Chrysler and Peugeot, announced in November, which creates the fourth-largest automaker by sales.
At the time the deal was announced, Eric Schiffer, CEO of the Los Angeles-based private-equity firm Patriarch Organization, told FOX Business the deal would create a “blistering degree of competition” over the next five years and “one of the greatest dangers” to Tesla’s survival.
Tesla’s accomplishments in the electric-car market haven’t gone unnoticed as others in the space have had their fair share of struggles.
Nio, often referred to as the “Tesla of China,” needed a $200 million injection from CEO William Li and the Chinese gaming giant Tencent, one of its largest shareholders, when it was struggling to keep up with delivery targets.
Meanwhile, the vacuum-maker Dyson killed its $3.1 billion electric-car project, saying it was not “commercially viable.”
Last week, Tesla shares hit $420 for the first time, reaching the price at which Musk said last year he had secured funding to take the company private.
The CEO’s tweet about the offer led the U.S. Securities and Exchange Commission to accuse Musk of making “false and misleading statements,” alleging there was no such deal to take the company private at that price, which would have been a substantial premium for investors.
The two sides settled the lawsuit, with Musk neither admitting nor denying the allegations and stepping down from the automaker’s board for at least three years. Both Musk and Tesla agreed to pay $20 million fines.
“We are not bullish on Tesla longer term, especially as, over time, we believe Tesla could be perceived by the market more like a traditional" automaker, the Morgan Stanley analysts said in a separate note sent to clients on Monday. “We are prepared for a potential surge in sentiment through the first half of 2020 but question the sustainability.”
They have a $250 price target on the stock – 41.2 percent below where shares settled on Tuesday.
Tesla shares have gained 27.8 percent this year.