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Tesla Gearing Up for a Better Future

May 07, 2014 | About:

Tesla Motors Inc. (NASDAQ: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. This swappable production strategy gives the company an advantage in achieving production efficiencies.

Recent Results

The spectacular Norway sales figures for Tesla in March are notable because Tesla only guided to sell 6,400 vehicles in quarter one — about 500 fewer than it did in the fourth quarter of 2013. Tesla said in its fourth-quarter letter to shareholders that the reason for the lower guidance in quarter one was that "the number of cars in transit to Europe and Asia must grow substantially to support those markets." As the logistics pipeline fills, it won't be until the following quarters, Tesla said, that production will ramp up to help the company hit its annual target of 35,000 Model S deliveries in 2014.

There were 2,056 Model S sedans sold in Norway in January, February and March. This would only leave about 4,340 Model S deliveries for the rest of Europe and North America. But it seems unlikely that global sales outside of Norway would be so limited considering that Tesla has been delivering cars in North America at a rate of about 5,000 cars per quarter for the last three quarters — it's been supply limited in every quarter even with an advertising budget of zero.

Brighter 2014

In 2014 Tesla is planning more cars than ever before. CEO Elon Musk is confident that Tesla can hit an annualized rate of deliveries that exceeds 40,000 cars per year by late 2014. Tesla will begin deliveries of its Model X in late 2014. Thanks to the success of its Model S, there's already a strong brand presence for the company. This should help boost sales of its crossover vehicle as more Model X cars hit the road later this year.

Blending the benefits of a minivan with the performance of a sports car, the Model X promises to a big hit with drivers in 2014. Built on the same drivetrain as Tesla's Model S, the Model X can go from zero to 60 miles per hour in 4.4 seconds. Tesla first unveiled the all-electric SUV in February 2012, and last year pushed production of the Model X into late 2014 to accommodate sales of its Model S vehicles. Moreover, shares of Tesla should pull ahead later in the year if Tesla can deliver on its revised promise of getting the Model X on the road in 2014.

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. Tesla's business model of selling directly to consumers is another factor that sets Tesla apart from traditional automakers.

The outstanding performance of Model S in cold weather also contributes to its rising demand. The high traction control provided by its electric powertrain leads to better performance of the car in snow and ice, compared to a gasoline powertrain. As a result, Tesla has the highest per capita sales in Norway.

China Being an Important Market

As the world's biggest market for premium sedans, China is an important market for Tesla. It has launched a soft opening of its Beijing showroom in the region that was greeted with great fanfare. The company has already received hundreds of orders for its Model S in Hong Kong. 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.

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.

The company 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.

To End

While it's important for Tesla to continue to execute on production to prove to investors that it can consistently execute, shareholders should keep their focus on bigger-picture items that will make or break the manufacturer as a major auto player — items like the Gigafactory, a plant purposed to build more lithium-ion batteries per year than all of the lithium-ion annual production in the world today. It's this factory that will help Tesla make its planned lower-cost electric car and sell it to the masses by 2017.

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.

Meanwhile, the demand for Tesla’s cars remains strong on robust performances and impressive designs of its products. Model S ensures the least possibility of injury to passengers among all major car makes and models in the U.S. The car won a five-star vehicle safety rating from the National Highway Traffic Safety Administration, which is awarded to only 1% of the cars tested.

Rating: 3.0/5 (2 votes)



Batbeer2 premium member - 3 years ago

Tesla has a market cap of $20B. If everything goes according to plan they can manufacture cars at a rate of 40k cars per annum by the end of this year.

This implies investors are paying $500k for the ability to build a car that sells for $60k.

It seems more rational to buy the car than the stock.

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