Tesla Motors, Inc. (TSLA) is a booming electric car manufacturer whose recent growth has stunned the auto industry. The Palo Alto, California-based company is at a pivotal point in its development. It has become a speculated takeover target for a wide range of buyers, perhaps most notably, Google, Inc. Google, which reportedly has $52 billion in cash, has invested in car technology in the past. Opposing Google could make conventional automakers interested in acquiring Tesla’s technology. In fact, there is speculation that Toyota or Daimler are potential suitors.
Recently, the company paid off a U.S. government loan and recorded its first quarterly profit this past spring. Ever since the company’s IPO three years ago, their stock price has soared more than an astounding 500 percent, from $17 per share to over $100. Currently, their share price sits at $114.60. Their 2012 revenue of $413 million is projected by analysts to rise to $3.2 billion by 2015, making the booming company an attractive buy for many investors.
While all of this sounds fantastic, a purchase of the company is not likely in the near future. Chief Executive Officer Elon Musk, a real life Tony Stark, may not want to part with the company just yet. “I’ve said from the very beginning, from the creation of Tesla, that our goal is to create a compelling mass-market car. I would not consider stepping away from Tesla until we’re there. We’re several years away obviously.” Furthermore, the hefty price tag that comes with the company can turn away potential investors.
But, can Tesla get to that point? At this point, some feel that the electronic car maker is drastically overpriced and its stock is not appropriately valued at $100 per share. Analysts point out that while the company currently does not have any direct competitors, competition from a major manufacturer, such as General Motors, BMW, Volkswagen, Ford, or Honda, could do serious damage to Tesla’s earnings. However, these auto tycoons do not presently see a market for a battery-electric compact luxury sedan priced around $45,000. On the other hand, if a market does develop, these large manufacturers are in a better position to mass distribute their product than Tesla, which currently owns and operates one factory.
In order for Tesla to continue to be productive in the future, they must make their product available to a wider audience. In other words, they must manufacture an electric car that’s lighter on the wallet. Tesla has shown that it can produce an expensive electric car, but it has yet to come out with an affordable one aimed at the average consumer. Consequently, this car would need to be somewhere in the $35,000 price range.
Tesla expects this to be possible in the near future because the company anticipates battery technology will improve. Eventually, this would allow the company to use smaller, less expensive batteries.
Furthermore, the company believes that as it begins to mass-produce cars, they will be able to negotiate cheaper prices for parts from their suppliers. Musk stated in an interview recently that Tesla was in the process of building a vehicle that would be “half the price” of their signature Model S (starting price $69,000). In addition, it would have a driving range of about 200 miles. This is expected out sometime in the next 3 to 4 years.
Another problem facing Tesla is increasing its system of Supercharger stations that allow Model S drivers to quickly charge their vehicles. In response to this issue, Tesla plans to expand the stations across the continental United States and Canada within a year. They will also offering battery-swapping at their stations in 90 seconds.
Perhaps the biggest problem the company faces is expanding their sales. Tesla makes and sells their cars directly to the consumer, typically online, with no middle man (dealership) involved. This business model can be problematic for Tesla’s expansion. Currently, 48 states limit, or ban entirely, the direct sale of automobiles. Going forward, Tesla may use a combination of their own dealerships along with independently owned ones. However, the company prefers to sell directly to their customers. Tesla has already petitioned Virginia to grant the company an exemption from its law prohibiting car manufacturers from operating their own dealerships. Musk stated that he might consider taking his case to Congress or the federal courts to fight these laws. In New York, legislators are considering a bill similar to Virginia’s law that would prevent the electric car manufacturer from selling its cars directly to consumers in the state.