A Tesla Collapse Would Boost European Carmakers, Bernstein Says

(Bloomberg) -- Germany’s car industry, including Volkswagen AG and supplier Continental AG, stands to gain in both business and stock prices should Tesla Inc.’s precarious finances lead to the U.S. electric-vehicle manufacturer’s collapse, according to analysts at Sanford C. Bernstein & Co.

Tesla’s initial success with the Model S sedan, which a carmaking rival called “deeply impressive,” seemed to show that new battery-power systems could soon overtake conventional engines, and that depressed the shares of established original-equipment manufacturers, Bernstein analyst Max Warburton wrote in a report Monday.

But now, the Palo Alto, California-based company appears to be “structurally unprofitable,” with high fixed costs, a much smaller market for its models than expected and technology that’s no longer unique, Warburton said. That compares with Daimler AG’s Mercedes-Benz brand and BMW AG, which consistently generate cash and are set to widen their electric line-ups soon.

“A financial failure of Tesla would force a change in investors’ views” of traditional carmakers, “hit the credibility of other newcomers” and weaken regulators’ push to speed up adoption of electric autos, Warburton said. “All of this will be positive for the valuations of European OEMs, particularly the German premium brands,” and also help parts makers such as Continental and its main investor Schaeffler AG that still have major internal-combustion engine operations.

Warburton’s comments are the latest salvo in a debate among industry observers over Tesla’s future. The share price has plunged in recent weeks, closing at a 2 1/2-year low on Friday, amid growing skepticism about consumer demand for Tesla’s vehicles and the company’s ability to handle its debt load. Tesla didn’t immediately respond to an emailed request for comment about the report.

Bernstein’s analyst on the U.S. carmaker, Toni Sacconaghi, has a market-perform rating on the stock and Warburton, who focuses on European auto producers, said he and his colleague have held several “bull vs. bear” presentations on the company. Two weeks ago, Morgan Stanley analyst Adam Jonas called Tesla a “restructuring story,” with the stock price potentially plunging to $10 in a worst-case scenario, as it’s likely to miss delivery targets.

--With assistance from Young-Sam Cho, Oliver Sachgau and Jan-Patrick Barnert.

To contact the reporter on this story: Tom Lavell in Frankfurt at tlavell@bloomberg.net

To contact the editors responsible for this story: Beth Mellor at bmellor@bloomberg.net, Phil Serafino

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