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5 things you need to know in SA business today and why there's really no contest In the battle between the Tesla Model S and the Porsche Taycan

Business Insider SA
 Sep 09, 2019, 07:11 AM

1. The violence in Johannesburg continued over the weekend, with one person killed. A group of men, some of them wielding sticks, pangas and tree branches, marched through the city centre after disrupting a meeting in which IFP President Emeritus Mangosuthu Buthelezi spoke to hostel residents following a week of deadly xenophobic violence.

This morning, the South African Chamber of Commerce and Industry has convened a meeting with the police and executives of companies who have been affected by the recent violence in South Africa, and retaliatory attacks in other countries.

2. The rand is starting the week on a solid note after the US central bank chairman Jerome Powell reassured investors that the central bank will cut interest rates again this year to support economic growth. Powell also said the Fed doesn't expect the US to fall into a recession and that low rate are already propping up the economy. It was last trading at R14.75/$.

2. Things could get awkward at Old Mutual's Sandton office this morning: the High Court in Johannesburg on Friday upheld an earlier ruling allowing its CEO Moyo to return to work. Judge Brian Mashile dismissed Old Mutual's application with costs, but granted the company leave to appeal. Old Mutual said in a statement that it doesn't want Moyo back at work, but he told Fin24 he will be heading to the office on Monday. 

3. Sasol's share price took a 4% knock on Friday after the company announced that it will have to delay the publication of its financial results for the year ended June 30, again. It board asked for additional time to investigate cost changes at its Lake Charles Chemicals Project in the US. hopes to release the results by no later than October 31 after its board agreed to "commission additional work".

AYO is at the centre of a storm involving the Public Investment Corporation, which invested R4.3bn into the company when it listed on the JSE in December 2017. The PIC valued AYO at  R14.8bn – but the company is currently trading for less than R3bn.

5. The board of Altron announced on Friday that three senior executives of its subsidiary Altron Nexus have been placed on pre-cautionary suspension. This follows an investigation that has revealed potential internal irregularities. The preliminary findings have revealed potential deviation from procurement processes involving an estimated R23m. It also involves early profit recognition of approximately R20m in the 2018 financial year.

Why there's really no contest in the battle between the Tesla Model S and the Porsche Taycan

Reported by Matthew DeBord

Last week, Porsche officially launched its much-anticipated Taycan all-electric car.

The Porsche Taycan Turbo S.
Porsche

The German sporting brand, famed for the legendary 911 and more recently the Cayenne SUV, will initially offer a pair of staggeringly expensive versions of the vehicle, which bears more than a passing resemblance to Porsche's Panamera sedan.

Read: Taycan unveiled: Porsche reveals its new fully-electric sports car

Incongruously, both Taycans bear the "Turbo" moniker, but that's because Porsche perhaps hopes to fit the Taycan into the overall naming logic of the the portfolio (being electric, neither has a turbocharger). In the US, the Taycan Turbo stickers at $153,510 (R2.3 million), while the Turbo S rises to the stratospheric level of $187,610 (R2.8 million).

If that sounds like a lot, given that EVs such as the Chevy Bolt and Nissan Leaf sell for a lot less than that, well, welcome to Porsche. The 2018 Panamera, the wagon version of the hybrid four-door, now sells for more than R3.1 million in South Africa.  There's a reason why Porsche posts some of the juiciest and most envied profit margins in ther car business. If you want a daily driver, look to Volkswagen (Porsche has since in inception after World War II been entwined with VW and is now part of the gigantic VW Group).

Taycan versus Tesla, a "rivalry" that goes way back

The Tesla Model S.
Tesla

Ever since the Taycan was first touted as a concept car, known then as the Mission E, it's been pitted against Tesla, currently the dominant all-electric automaker, with 2018 sales of nearly 250,000 vehicles. There's something to this: the EV market, even in the affluent and early-adopting, tech-giddy US, is tiny relative to the gas-powered realm. But Tesla has shown that an upstart brand can validate the prospects of cars that run not on incinerated dinosaur remains, but on electrons.

That's given the world's established automakers a legitimate excuse to pursue electrification, despite the general lack of receptivity among the buying public. (The 10-20% sales penetration that car companies were throwing around for EVs back in 2010 has manifested as something more like 2%.)

But take it all with a grain of salt. Porsche sold only around 8,000 Panameras in the US last year - a perfectly satisfactory result because the vehicle is so expensive. The alternative-propulsion versions of the car make a marginal contribution to that total, and are priced accordingly. Even a cheaper version of the Taycan would likely cost more than the least expensive Panamera, which already costs about as much as the most fully blinged-out Tesla Model S (if you maximally trick out the highest-spec Model S, you're looking at something like $115,000).

Sales volumes matter to Porsche, but bear in mind that the company isn't trying to sell to everybody. In fact, it's ultimately trying to sell to almost nobody - nobodies who would joyfully cough up six figures to be able to quote Tom Cruise in "Risky Business," from behind the wheel of a 928: "Porsche - there is no substitute." Porsche sold about a quarter of a million vehicles in 2018, so it's not breathing the same rarefied air as Ferrari (less than 10,000 in total 2018 sales), but when one goes shopping for a Porsche, one does not bring a lightweight checkbook.

The finest cars made by human hands on planet Earth

Porsche's are good. Real good.
Matthew DeBord/BI

What you get for the hefty outlay is the best-driving car on the planet. And it doesn't matter if you choose the 911 or the Cayenne. I've driven a lot of Porsches, and something special always happens when you fire up for example, the legendary flat-six boxer engine in a 911 and apply throttle: on the asphalt, Porsches are magic. In a recent test of the new Cayenne SUV, it took me all of five seconds to be transported to that transcendent Porsche state of mind. I like to say that if I had to drive for my life, I'd want to be driving a Porsche.

Another reason for Porsche to throw down an electrified gauntlet with the Taycan is that the company, like all automakers, is up against a future of more stringent fuel-economy and emissions regulations. EVs help with overall fleet compliance, enabling continued sales of big-ticket petrol cars. The VW Group overall also has run smack into a major problem with its diesel strategy, in the gloomy wake of its 2015 emission-cheating scandal. As a result, the group has pivoted to electrification in a major way.

So what should Tesla make of the Taycan?

No much, to be honest. Tesla proved that EVs could be more than glorified golf carts when it rolled out its sexy original Roadster, and the Performance trim of the Model S can be configured to outrun supercars from zero to 60 mph. But the Model S is rather long in the tooth at this juncture, dating back to 2012 with only a few modest refreshes since then. With the less-expensive Model 3 and forthcoming Model Y crossover, Tesla is moving away from the Mercedes-Audi-BMW-Lexus luxury sedan market and concentrating more on a kind of tweener space, just above the mass market.

Porsche has no interest in those segments, leaving them to Audi and VW. Porsche also leads with performance, so typical EV fixations such as range are less important. That's why Porsche is using an 800-volt design and a 93 kilowatt-hour battery architecture for the Taycan, aiming to optimize dynamics and recharge times rather than raw distance-per-charge. A Taycan owner is unlikely to care about range if their Porsche doesn't drive like, you know, a Porsche.

Tesla owners don't care about Nürburgring laps, while Porsche owners most definitely do

The Taycan tackles the Ring.
Porsche

That implicit standard means that Taycan and Tesla occupy different cognitive regions. Tesla Model S owners don't care that their car hasn't lapped the Nürburgring in 7 minutes, 42 seconds (the Taycan's impressive time), or even lapped the Nürburgring at all (a Model S hasn't, at speed, and Tesla has never officially taken on the famous German track). Porsche Taycan owners, meanwhile, would be dismayed if the Taycan hadn't conquered the "Green Hell." They're deeply aware that much of Porsche's history was forged and its credibility nurtured in motorsports.

The tricky thing here is that because the EV market is so small, there's currently a lack of meaningful competition. Tesla, understandably, has the market more or less to itself. And that's no bargain, because in 15 years of existence, the company has posted less than a handful of profitable quarters.

In that time, of course, Tesla has sold its cars for around $100,000 (R1.5 million) on average, and that's what garnered the attention of the Porsches. Established luxury automakers figure they're much better at building vehicles than Tesla and can effectively "create" new market share in EVs, with very high prices converting to rich margins. Tesla, after all, has bungled its way to 250,000 in annual sales, adding a point or so of share to a US market that prior to 2018 had looked pretty well locked up in terms of market-share expansion..

Tesla bulls and bears always make the same error

Of course, Wall Street short-sellers cheerleading for Tesla's demise are going to herald the Taycan's arrival as a watershed moment when Tesla's luxury-sedan business collapses as all the Model S customers jump to Porsche. Likewise, Tesla bulls will argue that the Taycan is too expensive and not tech-y enough to unsettle the Model S.

They're both making the same error: assuming that the cars are attempting to capture the same customers. Sure, there could be some overlap, but for the most part if you seek high-performance four-door electric driving, and you have the cash, the Taycan is your ride. If you want an electric alternative to something like a BMW 5- or 7-Series, the Model S has always been for you. Although with the Model S aging and no redesign on the horizon, it's not out of the question that Tesla may let the car wither as it shifts farther downmarket with the Models 3 and Y. So get your Model S while the getting is good!

You're going to hear a lot about Tesla-Porsche competition now that the Taycan is a reality, and that's fine. But it's also the script that both automakers want to hear everybody reading from, yielding as it does a welter of free advertising (especially valuable for Tesla, where the ad budget is CEO Elon Musk's Tesla feed). There's also some reflexive truth to Tesla versus Taycan; car people are raised on the concept of competition as central, and by the time they rise to the executive ranks, they dutifully recite the shibboleths in the same way that major-league ballplayers tell reporters that they're taking things one game at a time and are in it for the team.

That rhetoric masks what is often a healthy absence of competition, particularly when you're dealing with something esoteric, such as high-performance electric sedans. Nobody needs a $115,000 Tesla Model S or a $188,000 Porsche Taycan Turbo S.

But there's a significant number of people who want a Tesla or a Porsche, and their mindshare tends to be well-capitalized. Auto execs who hope to live well have few qualms about creating products that will separate those people from a percentage of their net worth. Porsche has been doing it for decades.

The bottom line is that in the battle between Tesla and Taycan, there's really no contest. Everybody wins. Especially wealthy consumers, who now have in Porsche not just more all-electric choice, but an EV that's based on the explicitly hedonistic values of driving performance, while simultaneously borrowing Tesla's save-the-Earth ethics.

That said, I must admit that after driving every Tesla ever made - and quite enjoying them all - I'm personally looking forward to some Taycan seat time for something entirely different.

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