GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

This Automobile Company May Be a Buy

September 23, 2013 | About:
abirk

abirk

4 followers
Tesla Motors Inc. (TSLA) designs, develops, manufactures, and sells electric vehicles, and advanced electric vehicle powertrain components. Tesla cars are manufactured in a far different manner than traditional vehicles. They have one standard battery platform on which they can mount varying motors and bodies. The company stands at an advantage in achieving production efficiencies with its swappable production strategy.

Financials

Tesla’s growing valuation now stands at $20.6 billion. This has infused the company with capital to aggressively invest in Superchargers, production, and international expansion. While Tesla has 1 percent of Ford Motor Company’s (F) U.S. monthly sales, the electric car company already has nearly a third of Ford’s $64 billion market capitalization. Tesla is now worth more than Suzuki Motor Co (SZKMF), Mazda Motor Corp (MZDAY), and Fiat, the majority owner of Chrysler Group, according to data compiled by Bloomberg. The stock has almost quadrupled in value this year, so it's not surprising that most analysts believe the stock is too richly valued to buy at its current levels. With a forecast of 25% for Q4, Tesla has been continually growing its gross profit margins well above, and beyond what Ford and General Motors Company (GM) are capable of.

Growth Opportunities

The company’s CEO, Elon Musk announced that the company is working on developing a driverless car. The car is supposed to get ready within three years. It is not alone in developing self-driving vehicle technology. The new Mercedes-Benz S550 offers the most advanced production self-driving car systems, including adaptive cruise control that can handle stop-and-go traffic, and a system called Traffic Assist, which steers the car at low speeds. When the Model S launched last year, it was missing one feature-set commonly found among its luxury competitors: driver assistance features such as adaptive cruise control, blind spot monitoring, or lane departure warning. The company appears to be addressing that lack, according to a recent statement by Musk.

Thecompany plans to sell its first all-electric SUV, the Model X, next year. The Model X will be similarly transformational in rethinking the SUV or crossover. The 10-year-old car maker is currently targeting delivery of just 21,000 luxury sedans this year. Overseas, Tesla just opened a factory in the Netherlands, where eager Dutch, Belgian, and French customers are taking delivery of the hotly awaited Model S. Even though the company has yet to price the car in the market, at least 300 prospective customers have plunked down deposits of $5,000 to $42,500 to reserve Tesla in Hong Kong.

Tesla filed an application to trademark the "Model E" name last month. It's widely believed that this will be the name for the next generation of Tesla after the current Model S sedan and next year's Model X crossover. Musk has discussed having a more economically priced car on the market by 2017, which just so happens to be around the time that this driverless technology becomes available. So it's possible this technology would only be in the Model S and Model X, but not the more accessibly priced Model E.

Being a Game Changer

Tesla's charging stations aren't the typical electric vehicle charging station. On average, Tesla's Superchargers are about 16 times faster than most public charging stations. In fact, Model S owners can get a 50% battery charge in just 20 minutes at a Supercharging station. Its $20-billion valuation means that management has even more cash than they had planned for to make the necessary investments, or even ramp up production and expansion more rapidly. Musk says the company should hit its 25% gross profit margin target, excluding zero-emission vehicle credits, by the fourth quarter of 2013. Tesla's business model of selling directly to consumers is another factor that sets Tesla apart from traditional automakers.

My Takeaway

It is one of the most innovative and forward-thinking companies in the auto industry today. Tesla’s future is largely dependent on its ability to continue innovating. U.S. markets are saturated. Tesla and other automakers are looking for international customers for explosive growth, particularly in China. An investor may get rich with this growing trend as the automakers are poised to surge with China’s middle class. China is already the world's largest auto market - and it's set to grow even bigger in coming years.

Entering the vehicle market without the normal constraints and biases that bog down traditional manufacturers has helped this California-based company become a wild success in the car market. All these factors are building the foundation for the company's eventual mass-market affordable car. And each factor helps to secure Tesla's spot among the big automotive companies, and change the auto industry forever.

Rating: 3.3/5 (16 votes)

Comments

swnyc2
Swnyc2 - 9 months ago
I'm still trying to figure out whether these cars are good or bad for the environment. The huge batteries require mining of large quantities of toxic metals. The electricity the cars run on is generated by burning fossil fuels.

A 50% battery charge in 20 minutes? That's terrible compared to gasoline or diesel.

This is way too speculative an investment for me.
aldandrea
Aldandrea - 9 months ago
This would have all been wonderful before we found all of this natural gas. Why burn natural gas at the utility level and then suffer the electricity transmission losses when you can use the natural gas in the vehicle itself much more efficiently? And you don't have the environmental and resource issues that are inherent in using batteries. Using batteries on a large scale has all kinds of issues that natural gas eliminates. I believe electric cars are already dead but just don't know it.

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK
Email Hide