Tesla: A Long Road Ahead

Positive sales outlook in China is a plus for company going forward

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Jan 23, 2017
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Tesla Motors (TSLA, Financial) ended 2016 in the red and the stock was down approximately 11%. The stock is off to a great start this year however. As per statista.com, the worldwide autonomous and semi-autonomous vehicles market is projected to grow to $40 billion by 2025, of which $6 billion will be generated by fully autonomous vehicles.

The electric car manufacturer is working tirelessly to strengthen its position in the self-driving cars market. A few months ago, the company started adding all the essential hardware to make the cars fully autonomous. The new hardware is not activated yet however, as it will first use this technology to gather data to enhance its semi-autonomous software.

The company also announced it will be using NVIDIA Corp.'s (NVDA, Financial) supercomputer in its new cars to aid in processing the collected data as well as enable the cars to recognize optical images via NVIDIA’s graphics processing units. This will put Tesla far ahead of its competitors because NVIDIA is the undisputed leader of the driverless car technology market.

Apart from this, Tesla will launch its new Model 3 in late 2017. The company has formerly gathered approximately 400,000 deposit-backed reservations for its upcoming Model 3 however. Keeping this is mind, it appears the market for electric vehicles is large enough to generate huge amounts of revenue.

Furthermore, Tesla’s steady 50% yearly growth in vehicle deliveries along with its massive investments for additional growth sets the company up to hold its leading position in a continuously growing market.

Moving ahead, China plays a very significant role in the electric car market since it is the second-largest auto market. Therefore, Tesla is making remarkable progress in China on the back of enhancing the EV market. It is possible for the company’s sales in China to surge over 300% in the next five years.

Tesla currently holds a 2% market share in China, but it looks like the company will be able to grow its market share due to the upcoming launch of the Model 3. Among the car's 400,000 preorders, the majority of orders are from China. In fact, if the company continues to preserve its 2% market share, its sales in this market will grow further.

Summing up

Although Tesla is facing tough competition from local players in China, it is still in a great position to benefit from the rise of EV sales. As a result, investors should not lose hope and continue to hold the stock in order to benefit once autonomous cars are successfully running on the roads in the future.

Disclosure: No position in the stocks mentioned in this article.

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