Shares of electric car maker Tesla Motors (TSLA: Charts, News, Offers) have been on a wild ride since its June 2010 IPO, trading in a wide range between $14.98 and $36.42 before settling down near its $24-$25 price range, only slightly higher than its open market debut eight months ago. Analysts and investors remain sharply divided on the Tesla story, with some claiming that the company, which has yet to turn a single cent in profits, is an “emperor without clothes,” while others remain bullish, calling it the “Apple (AAPL: Charts, News, Offers) of automakers”. As the company promises big things to come in 2011-2012, can investors remain patient with this highly volatile stock?
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Tesla Motors reported a quarterly loss of $51.4 million for the fourth quarter, more than double the loss of $24.2 million in 4Q 2009, which amounts to an annual loss of $155.3 million, almost triple the loss of $55.7 million in 4Q 2009. These are alarming numbers for a company that has yet to report a profit. Tesla had a rough start in 2009, with recalls of hub flange bolts and faulty auxiliary cables. While the recall affected nearly 1,000 vehicles, it was insignificant in comparison to the recalls issued by Toyota (TM: Charts, News, Offers), Ford (F: Charts, News, Offers) and General Motors (GM: Charts, News, Offers).
Tesla’s flagship vehicle, the iconic $110,000 Tesla Roadster, currently has 1,500 units in circulation in 30 countries. Its premium derivative, the $130,000 Roadster Sport, which has faster acceleration than the original Roadster, is the company’s attempt to strengthen its foothold in the luxury sports class of vehicles dominated by Mercedes and Porsche. Its budget variant, the Model S, highly anticipated by investors and auto aficionados alike, will be priced at $57,000 to take on BMW and Audi. The company claims that it currently has a backlog of 3,700 reservations for the Model S. Looking farther ahead, Tesla has a $30,000 sedan in the works codenamed BlueStar to target a more mainstream, upper middle class electric car consumer.
The Silicon Valley-based automaker appears to be taking cues more from its tech neighbors than Motor City, which reflects Apple’s implementation of the “crossing the chasm” sales strategy of premium pricing combined with limited production in intelligent brackets. Tesla’s strategy of selling sleek, eco-friendly designs at high margins echoes Apple’s business model, and differs greatly from its industry peers General Motors and Ford in Detroit, which have been struggling to evolve their aging lines to meet the demands for electric and hybrid vehicles. GM Vice Chairman Robert Lutz has admitted that the Tesla Roadster was the inspiration for the Chevrolet Volt, GM’s plug-in hybrid.
As investors await the release of more mainstream models and increased production volume, many have questioned the company’s ability to remain profitable in the short term. Tesla’s partnerships with Toyota to develop a powertrain system for its electric RAV4 and the battery for the Daimler A-Class, will both feed its development-service unit, which saw its quarterly gross margin increase from 58 to 68% last quarter. Tesla forecasts this deal to generate $69 million in revenue over the next four to five quarters. The company’s automotive unit’s margins increased from 15-17%, and on average Tesla reported company-wide margins of 22-30%, boosted heavily by its aforementioned partnerships. To address concerns of production capabilities, Tesla purchased a $42 million manufacturing facility in Fremont, which once produced 400,000 vehicles annually for its former owner, United Motors Manufacturing. In addition, large corporations such as Toyota and Panasonic, the maker of Tesla’s lithium ion cells, have invested heavily in Tesla stock. Toyota currently owns 3.2% of the company, while Panasonic owns 1.5%. These votes of confidence from its partners bode well for investor confidence.
The company provided higher than expected guidance for the next quarter, with revenue growth between $160-$175 million, with a narrower loss per share. J.P. Morgan currently forecasts the company to see reduced EPS losses through 2011-2012 before finally turning a profit in 2013. There’s no doubt that Tesla is a speculative bet right now, but if the company can truly become the Apple of Autos, it deserves a place on long-term investors’ watchlists.
Other News About TSLA
Tesla Launches First Italian Store in Europe’s Fashion Capital
Tesla goes after the Italian sports auto market.
Tesla Motors: The Apple of Automakers
The parallels are there, but can Tesla become the next Apple of Autos?
Other Stocks in the News
Wedgewood’s Rolfe see Apple and Google as winners
Apple and Google being scooped up by hedge funds.
New Coverage: $45 Trefis Price Estimate for GM
GM target prices raised.
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Leo Sun is long-time market follower and finance writer. He regularly contributes to the Stock of the Day analysis.
