Reason #1 Tesla will outperform – the Model S’s best-in-class technology, performance, and design
Tesla Motors Inc (NASDAQ:TSLA)’s second design, dubbed the Model S, is an all-electric, zero carbon emissions supercar that brings the future of driving to today’s consumer. Sporting a 5 Star safety rating, a top speed of 130 miles per hour, accelerating from 0 to 60mph in just 4.4 seconds, and with a range of 300 miles, the Model S is a performance beast that rivals BMW’s, Mercedes’, and Audi’s top offerings.
Most significantly, though, consumers are showing incredible demand for it.
At the end of the 4th quarter 2012, Tesla had a backlog of orders for the Model S in excess of 15,000 reservations. Fueled by the press of the Motor Trend Car of the Year award and with the data to back up the car’s incredible performance, Tesla Motors Inc (NASDAQ:TSLA) has rolled out a modern (and, relative to the rest of the auto industry, unconventional) distribution channel of retail stores. Tesla “dealerships” are more similar to an Apple Store than the Ford dealership on an acre of land off of the highway in your town. And similar to Apple, this allows Tesla to manage and own the entire customer experience.
Tesla is not limiting itself to retail sales either. Through partnerships with Daimler and Toyota, Tesla is licensing its battery and powertrain technology to other manufacturers in need of an electric or improved hybrid product. This diversifies Tesla’s income streams, validates and further establishes the company as the leader in the technology.
And the financial results prove the model is working. Tesla Motors Inc (NASDAQ:TSLA)’s Q4 revenue at $306 million was 500% higher than Q3 . Gross margins improved from (17)% to 8% and are expected to rise to upwards of 25% in 2013. Profitability should come in 2013, as the upfront expenses for manufacturing tooling, R&D, and capex will reduce sharply as the company shifts from development to production. December 2012 was, in fact, cash flow positive.
As Tesla enters markets with a new “retail” location, they soon follow with installations of “Super Charger Stations” on primary interstates or highways in that metro area. These Superchargers are capable of charging about half the battery of a Model S in only 30 minutes (which compares with overnight charging of prior electric vehicle technologies).
The Super Charger network is an obvious key to Tesla Motors Inc (NASDAQ:TSLA)’s future. The electric car industry will only see adoption if using the product is simple and convenient. The result is a chicken or the egg dilemma; a dilemma Tesla is solving by choosing both. The competition has chosen instead to do nothing, rather than investing the capital in infrastructure to enable the electric car market to grow.
Reason #2 Tesla will outperform – Americans love SUVs
The combination of the Model S’s success and Tesla Motors Inc (NASDAQ:TSLA)’s investment in infrastructure has propelled the company into the nation’s conscious. Tesla Motors Inc (NASDAQ:TSLA)’s first product, the Roadster, was a viable product that saw some success; it could almost be viewed as a proof of concept. Tesla followed with the Model S, which reset expectations for what a car could be. Slated for 2014, Tesla is now preparing to launch their 3rd design, a cross over SUV.
Known as the Model X, this product will propel Tesla into the SUV market at a time when volatile gas prices and uncertain economic prospects are driving many borrowers to smaller, more fuel efficient vehicles. The Model X is positioned perfectly to capitalize on this trend. Free from the negative reality of gas guzzlers, the Model X offers the luxuries, size, and safety of an SUV without the “pain at the pump”.
And the proof is in the numbers. After the public unveiling of the Model X, Tesla received over 500 reservations for the car in the first 24 hours it was available on TeslaMotors.com. American’s love SUVs, and the Model X gives them a product with all of the benefits without the costs to fill it up.
The concept of well-made electric cars with available infrastructure to support them on the roads has been proven as viable. Tesla has established itself as the market leader in electric car innovation, design, and manufacturing. Entering the SUV market with the Model X presents a huge market with a clear competitive advantage over similarly sized and priced offerings. Tesla is trading today in the mid $30s, just off from its all-time highs; the company should turn profitable in 2013 with the continued market acceptance of the Model S and dramatically increase sales in 2014 as the Model X comes online. These two in combination make now the opportune time to invest in Tesla.
The article The Future Is Now for Automakers – The 2 Reasons Why Tesla Is a Strong Outperform originally appeared on Fool.com and is written by Jay Jenkins.
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