This Stock is Screaming Buy
Piyush is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The demand for crude oil is rising faster than its supply. Over the long run, the commodity is only going to get more expensive. Also, due to rising environmental concerns, emission norms are getting more stringent. Altogether, these facts present a bullish case for electric motor vehicles (EMVs).
Tesla Motors (NASDAQ: TSLA) is one of the leading manufacturers of premium EMVs. The company recently launched its Model S, which is the first full sized luxury sedan in the world. Unlike economically priced hybrids like Toyota’s (NYSE: TM) Prius, Model S competes with premium offerings from brands like BMW and Mercedes.
The Model S comes in 4 variants starting from $49,900 excluding taxes. The buyer gets the option to choose between 40KWh, 60KWh, and 85KWh batteries. Up until now, electric vehicles have largely been discouraged due to their limited charging capabilities. However, with Tesla’s revolutionary superchargers, the Model S can cover up to 300 miles (at 55mph) with just 30mins of charging. This brings makes the Model S practical competition with gasoline powered cars. The company plans to install 120KWh batteries by 2014, which translates into at least 400 miles of distance covered on a single charge.
The company announced that in 2013 it would be installing “superchargers” across the US, which would be available free of cost to all Tesla vehicle owners. The company also aims to create a wide spread network of superchargers in Asia and Europe, and the installations are expected to begin by mid-2013.
Also, one should note that the supercharger stations are driven by solar energy, powered by SolarCity. This means that Tesla has to only pay for the initial costs and Solar City would bear all the maintenance costs. That’s a huge positive for the company.
Tesla Motors has been reporting better than expected earnings, and the management said that it’s not able to meet the market demand with current production levels. The management also said that it would be ramping up the production in 2 phases. In Q3, the company was producing 100 cars per week, which has now risen to more than 200 cars per week. By December's end, management aims to manufacture at least 400 cars per week.
On the back of production increases, we can expect blockbuster financial results for Q4. Since the demand for the Model S is greater than its supply, the company doesn’t have to worry about competitive pricing. Their website claims that Model S would get more expensive by 2013. Higher production levels coupled with higher margins would only strengthen its bottom line.
I believe two things can happen from here:
1) Competitors would look to make a deal with Tesla Motors and get their hands on its revolutionary supercharger technology.
2) Even if its competitors are able to come up with their own charging systems, they could sign up with Tesla Motors, in order to use the latter’s supercharger network.
Either ways it looks like a win-win situation for Tesla Motors.
Last year, Tesla Motors had entered into a $100 million deal with Toyota Motors, under which the former would provide the power train equipment for Toyota’s newest model of the Rav4. Toyota’s new Rav4 was launched earlier this year, which has been ranked #2 in “affordable compact SUVs in the US.”
However, Tesla motors doesn’t have franchises, and the company aims to succeed on its own. In my opinion, Tesla should tie up with AutoNation (NYSE: AN). AutoNation is a well-established auto dealer with a widespread network of over 215 new vehicle franchises in the US. This way Tesla Motors can save on the expenses incurred in opening new stores, and use the cash to expand its production facilities.
Overall, the offerings of Tesla Motors are revolutionary and the company is performing better than expected. The demand is far greater than the supply, and since the company has aggressive expansion plans for 2013, Tesla Motors gets a "screaming buy" rating!
PiyushArora has no positions in the stocks mentioned above. The Motley Fool owns shares of Tesla Motors. Motley Fool newsletter services recommend Tesla Motors . Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!