- Investors should focus on key metrics in both Europe and China, including Model S sales and the expansion of the Supercharger network into these regions.
- Tesla should deliver more guidance about the Gigafactory during its earnings release, which will be important, as the Model 3 is dependent on this $5 billion project.
- Model X reservations are estimated at over 18,000 vehicles; however, this is done through crowdsourcing. Investors will look to see how credible this number is if Tesla reports current pre-orders.
To say that Tesla Motors (NASDAQ:TSLA) has its hands full at the moment would be a gross understatement. With the Model S on the road for the past two years, the Model X in its design finalization phase, the Supercharger network expanding by the day, the Gigafactory's plans laid down on paper and the Model 3 constantly on the CEO's mind, one can only imagine the headquarters at Palo Alto, California, would be an extremely busy place right now.
The Model S Sales Count
In the first quarter of this year alone, Tesla delivered 6,457 Model S vehicles, leading the company to set an ambitious target of producing 8,500 to 9,000 vehicles in the second quarter and 35,000 during the fiscal year. Clearly, Elon Musk is not afraid of the demand side of the equation, considering the fact that the company is expected to release the Model X in the Spring of 2015, so coupling the demand for 35,000 or so Model S vehicles looks like a daunting task. Despite the recent news of the plant being shut down for retrofitting, one can only expect that the enhancements will only improve efficiency, possibly provide long-term lower costs, and improve sales. However, since the company has expanded to China lately, it might as well see the demand for its two-year old vehicle actually increase for the time being.
Source: InsideEVs - U.S. EVs and Hybrids Through June
Estimated North American sales for the Model S were 1,800 in June, and are tallied at 7,400 year-to-date. An important point for investors is that Tesla now has an international presence, and the demand for the Model S in Europe and China is strong and growing. Europe and China will be a strong metric for future growth, and investors should key in on the results when the company reports.
The Model X is Beefing up Tesla's Revenue Already
As previously mentioned in an earlier article, Tesla's Model X is filling up the company's bank account long before it hits the road. With approximately 18,000 crowdsourced reported reservations, $5,000 deposit each, and $40 million reportedly earned from a mixture of Model X and Model X Signature reservations in 2012 alone, we can imagine how much the company's upcoming CUV must be at the front for Elon Musk and Tesla to be able to deliver on time. Morgan Stanley analyst Adam Jonas estimated the number to be around the $160-million mark.
"We agree with Tesla management that demand for the Model X could materially surpass that of the Model S. The surprisingly strong $160m reservation balance was driven in large part by pre orders for the X."
Come 2015 and the arrival of the Model X, we could be seeing those numbers soar even further, if the Model X succeeds to deliver all that it has promised: more room, faster 0-60 mph acceleration and much better range than any other plug-in electric SUV available to consumers. However, the addition of the Model X, coupled with increased Model S Vehicles will test the current strategy of the company's Supercharger stations. If the few stations create considerable backlog or a queue, that causes issues that point to the fact that a 20-minute half-charge still may be too long when compared to the 5 minutes of traditional gasoline stations.
Source: Tesla Motors Club - Model X Tally
The Gigafactory and the Supercharger Network
In the meantime, Tesla is investing the money it is earning from its sales into very fruitful projects. The Supercharger network, for one, is a very good use of Tesla's cash. As most people know, Superchargers charge Tesla's vehicles' batteries over twelve times more than a high-voltage outlet in 30 minutes. This means Tesla owners can save a lot of charging time if they charge their cars at the Supercharger stations, which makes using Tesla for long distance driving increasingly practical. Realizing the importance of the Superchargers to the demand of its vehicles, Tesla Motors has been expanding the network very fast of late.
Source: Tesla Motors - Coverage of Supercharger Stations
The number of Supercharger stations around the globe is 151 today, which were 125 in number only 19 days ago. Aggressive expansion would, perhaps, be an understatement. Further, Elon Musk and Tesla have released the patents for the proprietary technology to competitors in the hope that more Superchargers will be created. Two important points come out of this patent move. One is that Tesla will have reduced costs as competitors install Superchargers in regions where it has a strong EV presence and needs to enhance the services for current and future customers. The second point is that this lowers the barrier to entry into new markets around the globe. As other companies install that superior charging station, Tesla will have a stronger sentiment to send its sales team into those markets and expand its potential market share. The move should make the Tesla Supercharger the industry standard. Both Nissan (OTCPK:NSANY) and BMW are "keen on talks" to enhance the existing customer experience. Musk met with BMW representatives prior to the patent release. BMW realizes the importance to reduce charging times for the success of the industry:
"Both companies are strongly committed to the success of electro-mobility and discussed how to further strengthen the development of electro-mobility on an international level."
Source: Tesla Motors - Supercharger locations in China
In fact, Tesla has opened an additional four stations in China, for a total of seven operating Supercharger stations. The addition of more stations in the metropolitan areas in China helps, as demand is strong in a region of the world that needs EV vehicles, and the government is providing incentives to educate and increase demand for EVs.
Another final point of contingency is the concern over funding the investment for the vastly important Gigafactory. The Model 3 depends on the company's ability to reduce costs with lithium-ion batteries being constructed in-house at lower costs. All of Tesla's vehicles would benefit from the predicted 30% cost reduction for the lithium ion battery packs. It's hard to imagine where Tesla would get all the cash required to complete the construction of the $4-5 billion factory, with the company itself offering just $2 billion of the total sum, and the only confirmed partner in the project so far is Panasonic. Amidst other plans under progress, it's hard to fathom how Tesla would be able to spare even $2 billion in cash. Even if the company were to invest the entire gross income from last year into the project, it would still be $1.5 billion short of the figure. This, with the construction of new Supercharger stations and the production of vehicles, does make one skeptical of the Gigafactory's execution. However, we must not forget that Tesla's CEO has other very successful businesses and investments up and running. It could be that he could furnish Tesla's part of the Gigafactory finances partly on his own. Musk did this before with Tesla, putting his own profits into the enterprise.
CAFE Ratings Show Tesla is Bound to Succeed
Tesla Motors' Q1 2014 report stated, "Overall, our customers have now driven Model S more than 275 million miles, saving nearly 14 million gallons of gasoline." It's no wonder, then, that the company has the highest CAFE rating (115.8) in the world. For all those looking to reduce their carbon footprint in the world, there's no greener traveling option than driving a Tesla. This is why the demand for Tesla's cars isn't going anywhere, as the company will continue to benefit from both California and the Federal tax-credits.
As investors gear up heading into Tesla's earnings report on July 31st, they should expect to hear more in-depth content on the different divisions of the company as discussed here. Should the company hit on all cylinders, current sales and reservations, expansion of the Supercharger network, and more information about the Gigafactory, the share price should respond positively, despite the large valuation.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.