After having a rough start to 2016, shares of Tesla (TSLA, Financial) finally started edging higher following the company’s better-than-expected guidance for the present fiscal year.
Although Tesla missed on the earnings and revenue guidance, it announced that it expects to deliver between 80,000 and 90,000 Model S and Model X vehicles in 2016. The guidance bodes well for the company’s trend of delivering strong revenue growth every year, and it is expected to meet the high end of the guidance range this time.
Sales are increasing
Without doubt, it is clear that the company’s Model S beat the competition the previous year. Throughout 2014, demand for Model S vehicles typically surpassed production. As a consequence, for Tesla, 2015 proved to be a decent year, as it accounted for boosting production to capture as much surging demand as possible.
In 2015, the total growth was largely narrative for the company, with its year-over-year growth in vehicle deliveries. The company’s overall worldwide Model S sales in 2015 were more than 50,000, up around 18,000 units compared to total unit sales in 2014.
In the course of 2014, the company stated that about 55% of new Model S demand was in North America, 30% in Europe and the remaining 15% in Asia Pacific. Growth for Model S sales perhaps would not emanate as easilyy, moving onward. With Model S now beating competition as decisively as it is, it conceivably will be grim for Tesla to cultivate sales of the vehicle in the U.S. during this year.
On the other hand, it's questionable that Model S sales have peaked, as the company has yet to improve on the vehicle's 2012 launch strategy.
Increasing competition along with sales
Tesla is not alone in the market as it carries on to face major challenges from its key rivals Faraday Future and Porsche. Recently, Porsche proclaimed that it is on its way with its Mission E project to manufacture an all-electric sedan. The overall cost for this project is around $765 million and is scheduled to introduce the four-seater to the market by 2020. Porsche intends to have a 310-mile range for the upcoming car and will be capable of using an 800-volt charger to restore a used battery to 80% in about 15 minutes. The car is stylish and will have the potential to openly challenge Tesla’s Model S.
Conversely, a huge dissimilarity between Tesla and Porsche is that Porsche is a lucrative company that has cavernous pockets and a successful track record whereas Tesla is still trying to prove itself and has resorted to equity elevations to keep itself floating.
The company’s high capex blister will carry on, with Barclays concluding that, over the coming five years, it will have to spend $11 billion. If the company was lucrative, this would not be a big concern. However, keeping in mind that it is presently not lucrative nurtures vital questions about its capability to finance forthcoming schemes. Therefore, it clearly indicates that Porsche will positively be going frontward with its Project E.
Conclusion
Despite the growing competition, Tesla can continue dominating the EV industry. I am confident that the company can deliver on its guidance this time thanks to the growing demand in China. Although the company is still not profitable, the stock can move higher if it continues delivering strong growth.
