Markets

Tesla Launches Model X: Time to Bet on Its ETFs?

While the automotive industry is still scandalized by Volkswagen's ( VLKAY ) emissions-rigging software algorithm, electric car maker Tesla Motors, Inc. ( TSLA ) turned the attention yesterday by launching its much awaited Model X SUV. Model X features classy falcon-winged doors and is as blazing fast as a Porsche 911 Turbo with the capability to rev up 0 to 60 miles in an hour.

Model X comes at a time when automobile observers believe that the distrust for diesel vehicles triggered by the Volkswagen scandal would turn consumers toward plug-in hybrids or electric powered vehicles. Further, stricter emission rules and the push for zero-emission vehicles speak in favor of this exotic and environment-friendly vehicle.

Nevertheless, its time to ponder whether the launch of the luxury electric car is as timely as it seems and whether it would help the automaker to turn to profitability. The company saw a wider adjusted loss of 82 cents per share in the second quarter of 2015 compared with 14 cents per share in the year-ago quarter. For 2015, Tesla expects to deliver 50,000 to 55,000 Model S sedans and Model X SUVs, down from the previous guidance of 55,000 vehicles (read: ETFs in Focus on Tesla Q2 Beat, Lower Delivery Guidance ).

However, the automaker expects to double its sales volume next year with the full ramp up of the Model X production. Tesla CEO, Elon Musk, believes there will be steady production and demand for 1,600 to 1,800 vehicles per week for Model S and Model X combined in 2016.

Despite the optimism, the diminishing public rage for electric cars is worrying. According to Electric Drive Transportation Association, the share of electric drive vehicle sales in total U.S. auto sales was 3.0% in the first eight months of the year, which is the lowest since 2011 and down from 3.5% in 2014.

Gas Prices

Tumbling gas prices are a major driver for waning electric car demand. The current average price of regular gas is $2.30 per gallon, which is substantially down from $3.40 last year and $3.60 in 2013. In some states, the average gas price is even lower than $2 (read: Q4 Outlook for Oil & Gas ETFs ).

Falling gas prices are shifting consumer preference back to gas guzzlers. In the first eight months of the year, sales of SUVs and crossovers went up 12.8% year over year while sales of cars dipped 3.1% from the year-ago level, as per Wall Street Journal.

Competition

Apart from weakening demand for electric cars, Tesla expects to face strong competition for the seven passenger seat Model X from its previous five passenger seat Model S sedan. The automaker already faces stiff competition from other popular electric vehicles such as General Motor's ( GM ) Chevrolet Volt and Nissan Motor's ( NSANY ) Leaf (the largest selling plug-in car in the U.S.), which are due to be upgraded to a longer range.

Model X is identical to Model S in terms of battery pack (90 kilowatt-hour lithium ion), drive motors (259 hp at the front, 503 hp at the rear) and software. Model X delivers a range of 250 mile (P90D version) to 257 mile (90D) on a charge while Model S delivers a range of 240 mile (70 KWh battery pack) to 265 mile (85 KWh), as per EPA.

However, Model X is dearer with a price tag of $132,000 (90D) to $142,000 (P90D) compared with Model S ($70,000 and $118,000). It is therefore worth seeing whether consumers will choose Model X over Model S for more space and futuristic looks albeit at a higher cost.

ETFs in Focus

Below we highlight top three ETFs having substantial allocation to Tesla Motors. Despite the buzz surrounding the Model X launch, the factors discussed above tell us that these ETFs might not be a good bet at this moment.

Market Vectors Global Alt Energy ETF ( GEX )

This ETF tracks the Ardour Global Index, focusing on global companies that are primarily engaged in the business of alternative energy. The fund holds about 31 stocks in its basket with AUM of roughly $76 million while charging 62 bps in fees per year. Average daily volume is paltry at fewer than 6,000 shares. Tesla Motors occupies the second spot in the basket with 12.4% allocation. The ETF has lost 10.6% year to date (as of September 29, 2015) (see all Alternative Energy ETFs here).

First Trust NASDAQ Cln Edge GrnEngyETF ( QCLN )

This fund tracks the Nasdaq Clean Edge Green Energy Index and manages assets worth $65.5 million. It charges 60 bps in fees per year and trades in lower volume of around 19,000 shares per day. In total, the product holds 46 U.S. securities with Tesla Motors taking the top spot in the basket at 8.8%. QCLN is down 20.8% in the year-to-date timeframe (read: Greener Days Ahead for Clean Energy ETFs? ).

Global X Lithium ETF ( LIT )

The product provides global exposure to a broad range of firms engaged in the mining of lithium or the development of lithium batteries by tracking the Solactive Global Lithium Index. Holding 25 securities in its basket, Tesla takes the fifth spot with a 6.5% share. The fund has amassed roughly $36 million in its asset base and trades in light volume of nearly 24,000 shares per day. The fund is expensive with a 0.75% expense ratio and it has shed nearly 20% so far in the year (see all Materials ETFs here).

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VOLKSWAGEN-ADR (VLKAY): Free Stock Analysis Report

TESLA MOTORS (TSLA): Free Stock Analysis Report

GENERAL MOTORS (GM): Free Stock Analysis Report

NISSAN ADR (NSANY): Free Stock Analysis Report

MKT VEC-GLBL AE (GEX): ETF Research Reports

NASDAQ-CL EDG G (QCLN): ETF Research Reports

GLBL-X LITHIUM (LIT): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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