It’s no news that Tesla Motors Inc (NASDAQ:TSLA) has major expansion plans. But with its car cards on the table, investors are wondering why CEO Elon Musk spilled the beans on new developments before maximizing sales for current car models. This physics major knows there are reactions to every action, and his move may be more calculating than we think. Here’s what you need to know.
Spoiled surprise
Shares of Tesla Motors Inc (NASDAQ:TSLA) are up 180% this year, but the automaker isn’t worried about making market moving announcements. After Q1 deliveries of its Model S clocked in at 4,750 units, 5.5% above expectations, Elon Musk is already moving on to next-generation models.
The CEO recently revealed plans for a new sedan and compact SUV with $35,000 price tags and 200-mile ranges. That cuts consumer costs in half, scoring major points for Musk’s mass-market musings. As fellow Fool John Rosevear recently noted, Tesla Motors Inc (NASDAQ:TSLA)’s vision is to become “the electric version of a car company like BMW.”
But bears are worried that Musk may be mouthing off a bit too soon. If car shoppers are tempted by Tesla Motors Inc (NASDAQ:TSLA)’s future offerings, this newest announcement might put off their purchases until newer, cheaper models hit the lot. Is this possible? Absolutely? Is it what Musk wants? Absolutely.
Out with the old
Tesla Motors Inc (NASDAQ:TSLA) built its business on the back of its Tesla Roadster, Model X, and Model S, but less efficient technology and a prohibitive price put these models out of want and out of reach for most consumers. Musk knows that these most recent announcements might minimize sales for current models, but that means maximized sales for its upcoming additions. With mass appeal comes increased brand power, economies of scale, and a market presence on par with other luxury competitors.
Scale is especially important as Tesla hopes to make the most of luxurious margins. To do that, the automaker needs to fill out the capacity of its room-to-grow factory. Tesla’s HQ is the old haunt of a Toyota Motor Corporation (ADR) (NYSE:TM) and General Motors Company (NYSE:GM) joint venture, rated at 500,000 vehicles. The factory dates back to the early 1980s, and fell into Tesla’s open hands after Toyota Motor Corporation (ADR) (NYSE:TM) tossed it off for $42 million in May 2010.
Tesla’s good fortune mirrors that of Tata Motors Limited (ADR) (NYSE:TTM) in 2008, when the Indian automaker bought Ford Motor Company (NYSE:F)‘s floundering Jaguar Land Rover company for a paltry $2.3 billion. And just like Tata Motors Limited (ADR) (NYSE:TTM), Tesla is hoping to maximize sales in the luxury vehicle department. In April alone, Jaguar sales clocked in at 4,710 units while Land Rover roared ahead with 23,790 units sold. Sales are up 12.2% year over year, and the company enjoyed more than 30% growth in the UK and Asia Pacific.
Is Tesla worth it?
With Tesla’s recent price spike, any attempts at valuation are virtually impossible. The company is in growth mode, and Musk’s recent announcements prove once again that this company isn’t playing by the rules. I’ve seen my own shares soar 175%, and I’m excited to buckle in for Tesla’s mass market ride.
The article Tesla’s Spilled Secret May Be Its Smartest Move Yet originally appeared on Fool.com and is written by Justin Loiseau.
Fool contributor Justin Loiseau owns shares of Tesla Motors, but prefers pedal power for his own transportation. You can follow him on Twitter, @TMFJLo, and on Motley Fool CAPS, @TMFJLo.The Motley Fool recommends Ford, General Motors, and Tesla Motors and owns shares of Ford and Tesla Motors.
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