In an article over at Bloomberg a few days ago, Tesla Motors (TSLA) indicated it believes it can reach profitability much sooner with the Model S (still a year or two away from selling) than Nissan (OTCPK:NSANY) can with its LEAF electric car, because of cheaper batteries. Tesla said its battery cells which are similar to those used in laptops allow the company to reach profitability after 20K Model S’s are sold. This is far less than the 500K needed for Nissan to reach profitability with the LEAF (that number from Nissan CEO). The Model S will be more of a luxury sedan and sell for nearly $60K (without subsidies) so it reaching profitability sooner really isn’t a surprise.
Nissan’s choice of a larger type of lithium-ion battery means “they will have a cost challenge that will be more difficult to solve,” Tesla CTO JB Straubel said in an interview. “It will require a lot higher volume before they really get to a cost point that is internally sustainable.”
I think the big question is will consumers embrace a smaller company like Tesla. With the company receiving support from Toyota (TM) and Daimler it will help, but Tesla may not be able to achieve the same kind of economies of scale, trust or brand recognition that a Nissan and GM can achieve.
Following a big run in November, shares of TSLA have been in correction mode. I’ve been bearish on Tesla and shorted it a couple weeks ago, but I actually think that it would provide a compelling entry point in the 22.50 – 24 area for a long trade. Shares are down currently and I remain bearish in the short term.
Disclosure: Short TSLA