Tesla's Cost-Cutting Efforts Will Drive Long-Term Profits

Both of Elon Musk’s companies have performed badly in the recent past. Tesla (TSLA) has lost about 10% of its value over the last few weeks whilst SolarCity (SCTY) has plunged over 50% in the same time. While I still believe that SolarCity’s business model is weak, Tesla has great upside potential. Investors can use Tesla’s recent weakness to initiate a long position in the stock to benefit from its position in the EV segment. I believe Tesla will continue to be a leader in the EV segment for years to come, making the stock a good buy at present levels.

Tesla's battery makes it a leader

Tesla is leading in the market of electric car maker when it comes to plummeting costs to build batteries.
Tesla will continue focusing on upgrading its electric vehicles and the launch of superior products, together with construction of the world’s biggest battery factory, will help the company cement its leading positon in the market.

The company proclaimed that it has moderately a decent understanding of all the battery technologies in the world, as it tracks approximately 60 developments around the world to bring down battery costs. With the company spending heavily on R&D, investors can expect the battery-cost to fall further. This will eventually boost the company’s margins going forward.

Tesla’s strategy to reduce the cost of batteries in its vehicles by around 30% per kilowatt-hour produced robust result, and is the key to success in producing and marketing its planned lower-cost model – Model 3. Tesla is planning to make further improvements in the technology segment as well as in the battery modules and packs, however, its major focus is on price per unit of energy.

Tesla’s continuous efforts to enhance its batteries accounts for the one of the cost-cutting ways. Whereas, the other side is simply scale. The outcome of scaling up its production is superior manufacturing efficiencies, cost reductions, and industrial improvements. Tesla’s under-construction Gigafactory will act as a major growth driver, as the company is scaling up its production big-time. Tesla’s no rival, other than BYD, is presenting anything alike in the works.

The company reported that it has 100,000 reservations for the Powerpacks and Powerwalls, which account for $1 billion in revenue. These bulk order could supply $40 million to $45 million in grid battery deals for the approaching quarter of this year.

Conclusion

While Tesla is bleeding money, the company is cutting back costs dramatically. The cost-cutting strategies will help the company to sustain its position as the market leader and will also increase profitability in the long-run. So, investors with long-term investing span can buy Tesla as the company is destined to be the market leader in the EV segment.
Published on Dec 3, 2015
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

Posted in ...