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Tesla Stock Takes Off On SpaceX Rocket
by John M. Curtis
(310) 204-8700
Copyright
September 4, 2014
All Rights Reserved.
Picking Reno,
Nevada for its new lithium ion battery gigafactory, Tesla Motors Inc. [TSLA]
stock leaped another four dollars a share to close at $286, with Zacks rating
the stock a “strong buy,” predicting $400 by year’s end. With a price-to-earnings-ratio of
2,990, it’s usually listed as N/A, showing by any conventional metrics the
stock’s virtually worthless. Yet
the nation’s biggest mutual, hedge and private equity funds are bullish on
43-year-old Tesla and SpaceX president Elon Musk to pull a rabbit out of his
hat, making his currently unprofitable elector car company profitable at some
point in the future. Building a $5 billion battery plant raises stakes in the electric car market,
anticipating selling 500.000 units by 2010.
Musk envisions the 10 million sq. ft. gigafactory as taking Tesla’s
somewhat boutique manufacturing at its Fremont, Calif., facility into full mass
production.
Once the Reno plant—a joint project with Japan’s National Panasonic—gets
ramped up Tesla will be able to mass produce its Model E or economy version,
cutting the current $70K price-tag in two to $35K. Gearing up for the 2015 release of
Tesla’s Model X or SUV out of Fremont, Musk’s reality of affordable electric
cars gets closer. With
the luxury Tesla S already getting rave reviews from Consumers Reports, ranking
the top American car with a 99% satisfaction rating, the Tesla economy version
should revolutionize the auto industry.
While plug-in hybrids and electric cars only account for 3.6% of today’s
car market, that fraction could change dramatically with Tesla’s Model E. Signing a deal Feb. 15, 2012 with
Mercedes Benz, Musk plans to supply essential components to electric cars,
including batteries, motors and gearboxes, to the legendary luxury carmaker.
When you consider Daimler-Benz took a 10% stake in Tesla in 2009, it’s
only natural to the two companies to partner in the future. Daimler has cooled on BMW’s
billion-plus-dollar investment in hydrogen fuel-cell technology, turning instead
to Musk’s more practical electric car platform.
Whatever the technical problems with hydrogen fuel cells, Musk has been
working out the kinks with electric cars.
Musk’s lithium-ion battery factory expects to get longer and longer range
out of the batteries, eventually matching distance capabilities of gas and
diesel-powered vehicles. With most
consumers not yet sold on electric cars because of price-and-range, Musk’s new
battery technology could change that in the near future. Tesla’s Mode S with an 85-kilowatt
battery has a range of 300 miles. As Tesla’s battery technology improves, the batteries get more compact with expand range.
Expected at the 2015 Detroit Auto Show, the Model E won’t hit the market
until 2016, possibly 2017.
Financing cars in the $35K range should dramatically expand Tesla sales, moving
toward its 2020 goal of 500,000 units.
Most motorists aren’t yet been sold on electric cars because of price,
range and convenience. Once Musk
offers the Model E, Tesla can see its sales volume go through the roof,
especially if they don’t play around with battery range. Offering the Model E with the
maximum range without trying to force consumers into paying for more range with
more expensive batteries should break consumers’ resistance to electric cars. If Tesla nickels-and-dimes consumers
into up-selling for longer-range batteries the Model E rollout could go badly. Value-oriented consumers need some
incentive to trade-in their internal combustion and hybrid cars for Tesla’s new
electric economy cars.
Tesla has succeeded in selling affluent car buyers in major U.S. cities
on taking a gamble on the Model S.
No car company like Tesla can survive in the future selling only luxury electric
cars. It’s one thing to sell luxury
cars with proven internal combustion engines, offering unparalleled speed and
performance to consumers that don’t care about cost savings. Tesla’s main selling point are that the cars are (a) environmentally friendly and (b)
thrifty to operate. Given the inconvenience of low-range electric vehicles and lack of available charging
stations, the electric car industry has done a poor job of marketing vehicles. No cost-conscious consumer wants the
inconvenience of low-range electric cars with sparse charging stations. Tesla’s begun to install more
charging stations in the U.S. and China, currently its two biggest markets. Before Model E arrives, extended
battery range and more charging stations are essential.
To keep Wall Street buying Tesla stock, Tesla must
press-the-pedal-to-the-metal when it comes to rolling out its Model X SUV and
especially its Model E that should break consumers’ resistance to electric cars. With a price-to-earnings-ratio near 3,000, Musk must value add to consumers. With design elements rivaling top
luxury brands, Tesla needs to pull out all the stops when it comes to
price-and-range of its new lines of vehicles. Tesla’s current and future stock valuation depends on future car sales, something
affected by consumer psychology. Already perfectly positioned like Apple Computer with the iPhone, Tesla “first mover”
position should virtually monopolize the electric car market. If they don’t hold back giving Model
E consumers maximum driving range and value, it’s going to be difficult for
other electric car companies to take away Tesla’s market share.
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