Compared to most other fledgling automakers, which rely on
shared assembly plants or rented space from the big players,
) is much better off.
In 2008, founder Elon Musk took advantage of the financial crisis
to purchase and retool a state of the art
) manufacturing facility called "NUMMI." In theory, NUMMI is
capable of producing 500,000 cars per year.
But if the Tesla is going to grow into a sales behemoth, it's going
to have to prove it can shatter the ceiling imposed on most other
electric cars; it has failed to consistently break above 5,000
units per quarter.
Assuming Tesla can actually buck this trend, it would need to drive
demand at a heavy annual rate to get there. On December 31, 2012,
the company boasted a total of 15,000 reservations for its cars. So
far this year, it has delivered 4,750, according to a statement
ahead of earnings.
And sales need to rise 14.6% each quarter to maintain the velocity
toward that 500,000-car goal. That's an impossibly lofty bar for a
new brand still limited just to direct sales. Expect news about a
dealership network sometime very soon, if there's to be true hope
to reach this goal.
What's important is steady marginal growth for the Model S, through
the introduction of Model X, and the eventual "GEN III" car,
targeted at the mainstream market with a competitive midsize sedan
As the company introduces lower-end cars, average revenues per car
will drop (as will margins, in theory). Thus, the many projections
I've come across that assume revenue per car is stable are not
So long as a company shows no signs of slowing growth, the market
can award it a high P/E ratio for a long period of time.
), for instance, maintained a high P/E ratio-well above 60-for much
of the first few years of its life on the public markets.
However, among all American stocks (excluding real estate trusts,
which trade on different factors altogether) -- even at today's
all-time stock market highs -- only a handful of companies with
multibillion-dollar market caps trade at multiples of greater than
35 times current and forward earnings, including:
Crown Castle International
All of those are technology companies in one fashion or another.
Technology businesses are far less capital-intensive, have no real
necessity for debt, and generate much stronger margins.
Tesla, by contrast, will enjoy roughly a 25% gross margin by the
close of 2013, if all things work according to expectations. By
comparison, established automaker
(OTCMKTS:DDAIF) (makers of Mercedes) enjoys gross margins of 21%.
(ETR:BMW) has 18%, and it's 14% for Toyota, 13% for
(F), and 9.9% for lowly GM.
Tesla may find a way to maintain a 25% margin if it stays 100%
luxury. If Tesla goes downmarket too early, it could see those
numbers erode quickly... and that surely would spook the market
away from those multiples we discussed above.
Still, don't fret too much if you're a Tesla investor. Most startup
automakers would kill for those numbers at the same size.
No other electric comes even close to delivering what the Tesla
Model S does. And if the company can do the same in the lower price
segment, it will have Apple-esque lines queuing up for the next
one, thereby maintaining much of that pricing power.
Don't underestimate Musk. If anyone will be there waiting to supply
those drivetrains with open arms, it will be him. Right now, it's
Tesla's market to lose.
Editor's Note: This article was written by Alex Daley of
Casey Daily Dispatch
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