California-based electric car maker, Tesla Motors Inc (NASDAQ:TSLA), is taking a step in the right direction. Not only are media outlets inundated with news relating to its new found profitability, but the company is also making all the right moves in the right places. Although it still has a long way to go, Tesla Motors Inc (NASDAQ:TSLA) has managed to position itself as a good long-term play. I believe that Tesla Motors Inc (NASDAQ:TSLA)’s clear cut goals, coupled with its forward looking strategy, signal huge growth potential moving forward.
While Tesla Motors Inc (NASDAQ:TSLA)’s cars initially passed by as an option for the affluent and well placed in society, CEO Elon Musk wants to change this impression. In a multi-step plan, Tesla has shown that it wants to expand its reach into the mass market, and if possible, rope in more budget witty consumers.
Towards the end of March, it announced that it would scrap off plans to produce its most affordable Model S. The move, which at the time seemed absurd, was however followed by a better proposition dubbed as ‘Tesla Motors Inc (NASDAQ:TSLA)’s big announcement’.
The much anticipated announcement wiped away the gloom and gave budget disposed consumers reason to celebrate. Unlike in the past, where Tesla Motors Inc (NASDAQ:TSLA)’s customers had to pay lump sums, Elon Musk has now designed a new buy-lease financing scheme.
The scheme combines leasing and owning a Tesla Model S. It will have the makings of a typical car lease contract and customers will pay monthly payments in the neighborhood of $500. To sweeten the deal, leasing and owning the car will give buyers the option of keeping the Model S or returning it after three years.
As such, the customer loss that will be brought about by scrapping off cheap S models will be offset by the inflow of new customers under the new financing scheme. I personally believe that this is a laudable move, and as earlier stated, a step in the right direction.
Huge leeway in the mass market
While there is no denying that there will be a lot of elbowing and lopsided competition in the mass market, I believe that Tesla will finally establish a solid footing.
Already, the electric car maker has shown that it can face and trounce its competition. By dominating its space, Tesla has edged out its fellow electric car maker Fisker Automotive. Fisker is not only grappling with low sales, but it is also teetering on the brink of bankruptcy. The car maker, which has drawn in $192 million in Energy Department loans, hired Kirkland and Ellis — a major bankruptcy firm — to review its options moving forward.
The dynamics of the mass market are however fundamentally different, and there is a huge concern that big wigs like Chrysler, Ford Motor Company (NYSE: F), and General Motors Company (NYSE: GM) will crush Tesla.
Chrysler, which is no longer publicly traded, was the only domestic automaker which gained market share in 2012. To add to this, its auto sales edged up 5% in March, signaling the third full-year of year over year sales growth in every month. The same story of sales gain was also witnessed at Ford and General Motors.
In March, the General Motors Company (NYSE: GM) posted its best sales since 2007, as sales increased 6% to 245,950 units. Ford Motor Company (NYSE: F)’s sales also rose 6% to 236,160 units, marking the best sales since May 2007. Although the industry hasn’t gotten back to pre-recession levels, I believe that the impetus behind this rally will drive sales even higher in the future.
Ford Motor Company (NYSE: F) and General Motors Company (NYSE: GM) have also jumped onto the tech bandwagon, particularly ‘smart’ technology. Instead of developing their own in-house software for their cars, they have turned to the experts. At the CES held earlier in the year, they made it clear that it was their intention to create a technological ecosystem around their cars.
Both the automakers, though separately, have plans of inviting app developers for their cars. These apps are aimed at improving functionality, user experience, and safety. In my opinion, this move could greatly improve sales moving forward.
In light of what seems to be cutthroat competition, why do I argue that there is a huge leeway for Tesla?
I believe that the uptrend in U.S. automobile sales will eventually saturate the market with conventional automobiles. Considering the strain that this will put on the energy sector, I foresee a lot of government and eco-warrior led campaigns against conventional cars. In addition, the glut in the market will push consumers to look for something new, something energy efficient, and more importantly, something futuristic.
Given that Tesla is striving to identify itself as the car maker of the future, it will gain immensely once the market reaches this point. The stock is a good long-term play, especially now that it has poked its head above the all important break-even point.
Lennox Yieke has no position in any stocks mentioned. The Motley Fool recommends Ford, General Motors, and Tesla Motors . The Motley Fool owns shares of Ford and Tesla Motors .
