Tesla (TSLA) has taken the investment community by storm. Once a $35 stock - a company that was scolded and left for dead because of debt and uncertainty in the electric car market - the company has skyrocketed in recent months, almost to the $150/s level, and many analysts and traders are begging the question, when does the parade end?
In the early era of automobile manufacturing, trade secrets made all the difference in the world, particularly in regards to manufacturing process and production technology. Ford (F) was a powerhouse, largely in part to its in house expertise. As time progressed however, the automotive companies of our modern era began behaving in a cyclical manner, largely due to the simple fact that their offerings were not very different. Consumers had personal preferences, but the differences - within the same price levels of course - were very minimal, based more on brand than anything else. Decades of production and development had brought the industry to a plateau, and in time, the automotive playing field leveled out.
I am a bull on Tesla, even at $144/s, and the very basic reason why is that this company is several long years ahead of every other company out there, and no other company can put out the same level of product at the same price point as TSLA. The battery technology, the size, the range, the speed, the list goes on. More importantly however, prior to TSLA, the electric car market and the mainstream consumer car market were segregated. With the arrival of TSLA as a dominant force in the industry, this is no longer true. TSLA has produced a luxury quality car that has ample range and longevity with performance beaten by hardly any at the very same price range, electric or not. The company is capturing the high end, high margin market because Musk has repeatedly emphasized this as a key strategy for the future of electric in general, and the more cars TSLA puts out, at lower price ranges, the more likely I believe it is that TSLA will undoubtedly become as valuable of a company as BMW Group, and with a profit of $2.75B dollars, if the company can ever possibly achieve the pinnacle status and market penetration of BMW, that would put TSLA EPS at approximately $25/s. Assuming a similar P/E to BMW at a conservative ~9.3 that puts us at a PT of ~$225/s. Now I already know that I am going to receive a variety of malevolent comments, after all the BMW Group has a variety of brands, including Mini, Rolls-Royce, BMW and a motorcycle lineup, but let me give you some reasons why I see TSLA on BMW's level within the next decade.
Electric Car Technology That None Can Match
Let's be very clear here, TSLA has completely revolutionized the playing field for electric car companies. Nissan (OTCPK:NSANY), GM (GM) and BMW all need to be very afraid, because TSLA is years ahead. I have made a table comparing the major electric car options out there based on specs from here, here and here.
Top 5 Selling Electric Cars in US (2012) vs. BMW i3 vs. Tesla Model S
|Tesla Model S||BMW i3||Chevy Volt||Toyota (TM) Prius Plug-in||Nissan Leaf||Mitsubishi (OTCPK:MMTOF) i-MiEV||Ford Focus Electric|
|Range - m||230||118||40||11||73||62||76|
|Top Speed - MPH||120||93||100||112||90||81||84|
|Weight - lb||4647.3||4647||3781||3100||3385||2579||3624|
|Charge Time 240v/120v||5 Min?||6/? hrs||4/16 hrs||3 hrs @ 120v||7/21 hrs||7/22 hrs||4/20 hrs|
As you can see, even with the increased price tag, the specifications are leaps and bounds ahead of the rest. Musk even went so far as to personally guarantee the quality of the battery pack. The simple fact is that other companies can't produce the car that TSLA has at the price that TSLA has, and this is the best that they can produce at the $30-40k price range. Why would I go out and throw down $40k on a Focus Electric or a Chevy Volt when I could put in the extra money for a Model S that accomplishes all of my electric goals significantly better than any other electric could? And the more important question is, why would I throw down $40k for a Focus Electric when I can buy a very nice BMW 3 Series for under that amount? This is what brings me to my next point!
Desegregation of Electric and Gasoline
TSLA has transcended the electric car market, in fact marketing itself as a competitor to gas cars of the same price range. Who in their right minds would purchase a Volt or Plug In without the explicit goal of being environmentally friendly, when for the same price you could buy some very, very nice gasoline cars? However, the same question does not apply to TSLA, let's look at another table I have put together using data from here, here, and here.
Comparison of Model S vs. Top Luxury Gasoline Cars
|Model S||MB E550 4Matic||Audi (GM:AUDVF) A7||BMW 5 Series GT|
|Fuel Economy - mpg||95 Com.||22 Com.||21 Com.||24 Com.|
|Warranty||4 yr/50k m||4 yr/50k mi||4 yr/50k m||4 yr/50k m|
|Weight||4647.3 lb||4145 lb||4167 lb||4641 lb|
|Cargo Room||63 cu ft||15.9 cu ft||24.5 cu ft||20.7 cu ft|
As you can clearly see, the Model S is directly comparable to the luxury gasoline cars in its price range, while in some cases beating them, most notably in cargo room and logically MPG. In addition, Musk personally guaranteed against depreciation for worried potential buyers. All this being said, I think we can agree on the marvels that TSLA has truly accomplished. So then the only question that remains is, how does TSLA attain the size and notoriety of a company that has an established brand and mass market appeal like BMW?
The Path Forward
TSLA will achieve the size, market cap and sales of a company like BMW by offering a better product in almost every sense of the word for every major price point that BMW offers a product at! It will certainly take time, but I have no doubt that this is the moderately long term intention of Musk. We know this because of exclusive interviews, and a quality article has offered some very, very interesting details.
"What the world really needs is a great, affordable electric car," Musk said in the interview. "I'm not going to let anything go, no matter what people offer, until I complete that mission."
Timetables point to the release of the highly anticipated Model X in late 2014, this is a car that I am particularly looking forward to as it captures the crossover market segment. A BMW owner chimed in on the Tesla Forums:
"I currently own a BMW X5 and want to replace that with the Model X (in.. sadly... 2015 when they are able to deliver)."
In addition to the crossover segment, the most anticipated car on my watchlist coming out of the TSLA brain trust is the company's future competitor to the BMW 3-Series. If TSLA can achieve anything similar to what it achieved in the Model S relative to the 5-Series GT, then BMW should be very, very worried. The following image comes courtesy of the shareholder meeting.
The "Third Generation Platform" is the 3-Series competitor in question, and with a suggested range of over 200 miles at a price point close to the current Ford, Chevy and Toyota electrics at around $30K, that would be a game changer.
With these 3 offerings in these three segments, I believe that TSLA will be able to capture the market by storm. However, it doesn't stop there. What most people don't realize is that TSLA is also working with Google (GOOG) in an entirely different and entirely infantile segment of the market, the autonomous car. All of this, combined with future international sales, leads me to believe in the company potential for success as well as the practicality of the vision of the CEO.
TSLA was once highly shorted and long written off as a company led by a CEO with nothing but vision; the company allegedly lacked the capacity, know how and product to back up the investment. In the last several months the company's share price has skyrocketed, and many analysts and investors have called a top to the winning spree, some venturing as far as to call it a "bubble". Contrary to many, I believe that the market is fairly valuing, if not under valuing the company's shares, given the size of the float at approximately 115M and the capacity the company has to grow revenue. The company will undoubtedly release more cars, and with the three known future cars in the pipeline, I believe that TSLA will cement itself as a car brand that offers economical luxury, all whilst promoting green technologies. In addition, the prospects of infant industries, such as autonomous automobiles, seem high and unaccounted for. At the end of the day though, the key to the success of TSLA in the next decade will be the simple fact that the company is leaps and bounds ahead of every single one of its peers, both gasoline and electric, and with the emergence of TSLA as a real player on the field, trade secrets now matter perhaps more than ever before.