Stock Analysis: Tesla Motors (TSLA)

Stock Price: 198.23 [as of Feb 14, 2013]

Market Cap: 24.3 billion  [as of Feb 14, 2013]

For context: GM’s market cap is 57.1 billion

What is it?

Tesla Motors is a groundbreaking car manufacturer that makes EVs powered solely by lithium-ion batteries. Its Model S has a range of up to 480 km and a top speed of 210 km/h *. It is an American start-up and is especially notable for its stock price increase of over 400% in 2013.

Its Model S:

Yays:

  1. Tesla’s Model S was given the title of “Safest Car Ever Tested” by the National Highway Traffic Safety Administration in 2013, shattering safety records.
  2. Tesla has sold cars in all 50 U.S. states, and has officially launched sales in Asia and Europe (the Netherlands loves Tesla), with more stores to open in 2014.
  3. There is no lack of demand for Tesla. It really says something about a car company when instead of advertising and getting more people interested in buying, what they need to do is make more cars to satisfy all the people that would like to buy. This has created the bizarre situation of used Tesla cars being sold on the market at a higher price than new ones. Don’t believe me? Check out this article here.
  4. Tesla is not satisfied with just maintaining the status quo. It is looking to expand its product line as well as its production capabilities. Currently in the works is the Model X (all-electric SUV) and according to CEO Elon Musk, a vehicle that will be at a lower price-point. This means there is a lot of room for expansion and the entire automobile industry is its oyster.

Nays:

  1. In October, Tesla stocks plunged because of car fires and people questioning the safety of the Model S. Musk himself addressed the situation and assured shareholders as well as the general public that he had confidence in the safety of the Model S. None of the drivers were hurt. This did not stop the media storm that followed, since many are still questioning this new technology. (Unfortunately, leading up to the release of Q4 earnings, there has been yet another Tesla Model S fire, details can be found here.)
  2. A large portion of Tesla Motor’s revenue formerly came from the sales of zero-emission credits. The sale of such credits contributed a lot to its first-ever profit in the first quarter of 2013. Unfortunately, due to regulatory changes by the California Air Resources Board, they will likely not be making as much revenue as they expected from this particular source.
  3. Tesla Motors has enjoyed relatively little competition so far. However, GM announced that it is beginning R&D for an EV as well, one that will be able to sell at a lower price point and have a similar range to the Model S *. I would not be surprised if other car companies jumped on the bandwagon sooner rather than later, seeing Tesla’s success.

Conclusion: I believe that at this point Tesla Motors is going into a price that buyers need to beware of (even if it manages amazing earnings this quarter). This is especially true for short-term investors. In the long term, I think Tesla is a company with massive potential. As for whether it will continue to outperform expectations, that has yet to be seen. Its swift expansion gives room for hope. However, potential/current investors would do well to remember that Tesla’s large success has much to do with it having an innovative product that was never seen before on the market. The novelty may wear off as other companies begin to seize this opportunity as well.

Still, I have faith in this amazing company that is driving like none have driven before (haha). The reason that Tesla is trading more like a tech stock than like a car company stock is because it offers innovative technology that could change not only the transportation industry, but the world as we know it.

Tesla’s earnings for the quarter ending December 31, 2013 will be coming out on February 19th.

Added Note: This just in, Tela’s Q4 earnings for 2013 were AWESOME!

Disclosure: I have no position on the stock mentioned, and am in no way a trading professional. I still have much to learn and this is only a little practice exercise for me in stock research. Please do not take this as serious investing advice.