Tesla Motors Inc (TSLA): An Electric Future

Is the way we commute about to undergo an industry transformation?

Tesla Motors Inc (NASDAQ:TSLA) CEO Elon Musk thinks so. What remains unclear is the scope of the competitor landscape and what Tesla will have to accomplish to solidify its stake in the emerging electric car market in order to become a viable long-term investment.

Tesla Motors is proving to be a technologically disruptive presence in the transport industry. The company ranked 1st in Deloitte’s 2012 Technology Fast 500 Ranking, a measurement on percentage of revenue growth over 5 years. In this case, Tesla witnessed growth of 270,000%.

Like many start-ups however, Tesla Motors Inc (NASDAQ:TSLA) has suffered its fair share of drawbacks as it strives to bring its next-gen electric vehicles to market. Issues have included two safety recalls for its Roadster model in May of 2009 and October of 2010 as well as a number of lawsuits involving founder disputes and charges of slander and breach of contract. Despite these road bumps, Tesla has recovered in the last few years. For Q1 2013, a gross margin of 17% was reported and, as Elon Musk wrote, “Tesla reached profitability in the first quarter of 2013 for the first time in our 10-year history.”

The business expects its gross margin to soar to 25% for Q2 while acknowledging that it will no longer be able to rely on zero-emission vehicle credits income as the price declines and credits will only apply to 1/6 of worldwide deliveries.

The competitor landscape

With Tesla Motors Inc (NASDAQ:TSLA) finally having some positive news to share with investors, the rest of the industry is beginning to take notice.

In particular, Tesla caught the attention of General Motors Company (NYSE:GM) who has put together a team to investigate the threat Tesla poses, with General Motors vice chairman Steve Girsky stating, “History is littered with big companies that ignored innovation that was coming their way because you didn’t know where you could be disrupted.” This is a positive indicator for Tesla given competitors are now admitting to taking Tesla seriously.

The ailing automotive giant is attempting to ensure it remains profitable, reporting a 0.02% increase in global market share to 11.4% for Q1, 2013, despite earnings before interest and taxes, or EBIT, $400 million less than the same time last year, signaling an overall decline in the market. This decline is driven by consumers who are demanding smaller, efficient vehicles in light of rising oil prices. We will probably see General Motors Company (NYSE:GM) adapt to these demands in the longer term, providing significant competition for Tesla Motors Inc (NASDAQ:TSLA). At present, Tesla is in an excellent position to obtain a significant share of this emerging market.

Meanwhile, another competitor, Audi, (NASDAQOTH: AUDVF) has designed an electric car of their own: the R8 e-tron. Audi, however, has decided R8 e-tron electric car model will not be for commercial sale and only 10 will be made for ‘research purposes’. Each R8 e-tron will cost $1.3 million to make and were slated to sell commercially for $150,000. The reason for this decision was the slow pace in battery technology.