By now the fact that two of Tesla's (TSLA) leading engineers have left is old news. With the anticipated mid 2012 launch of the Model S around the corner, and all the engineering duties passed on, the recent drop in stock price looks to be an excellent opportunity to add shares.
To simply understand Tesla's potential I've mapped out brief summary's of both high and low end financial projections through 2014. See below:
Low end financial projections (in USD).
2012
Model S - 5,000 (units sold) x $59k (price per unit) = $295 million
Last Roadster Production - 400 x $130k = $52 million
Toyota Powertrain Contracts = $40 million
Mercedes Powertrain Contracts = $40 million
Total Rev = $427 million
2013
Model S - 15,000 x $59k = $885 million
Model X - 1,000 x $60k = $60 million
Toyota Contracts = $60 million
Mercedes Contracts = $60 million
Total Rev = $965 million
2014
Model S - 20,000 x $59k = $1.18 billion
Model X - 8,000 x $60k = $480 million
Toyota Contracts = $80 million
Mercedes Contracts = $80 million
Total Rev = $1.82 billion
High end financial projections (in USD).
2012
Model S - 7,000 (units sold) x $59k (price per unit) = $413 million
Last roadster production - 500 x $130k = $65 million
Toyota Powertrain Contracts = $70 million
Mercedes Powertrain Contracts = $75 million
Total Rev = $623 million
2013
Model S - 20,000 x $59k = $1.18 billion
Model X - 1,000 x $60k = $60 million
Toyota Contracts = $90 million
Mercedes Contracts = $100 million
Total Rev = $1.43 billion
2014
Model S - 20,000 x $59k = $1.18 billion
Model X - 15,000 x $60k = $900 million
Toyota Contracts = $120 million
Mercedes Contracts = $130million
Total Rev = $2.33 billion
Although Tesla has said it is hoping to achieve a gross margin of 25% with both the Model S and Model X, analysts are projecting a net margin of around 11% for 2014. That puts my low end estimate of 2014 EPS at $1.74 per share, and high end estimate at $2.22 (assuming 115,000,000 shares outstanding). That means with shares currently trading around $22, Tesla is trading at just 9.9x 2014 earning projections. This may seem reasonable considering that 2014 is a good 48 months away and a lot could change, but the fact is 2014 will just be the start of Tesla's growth.
Numerous articles and sources have noted that sometime around 2017 Tesla will release a more mass market EV (Electric Vehicle) priced around $30,000. The current demand for EV's is slated to go from 123,000 in 2012 to 998,000 in 2017. But what's even more intriguing is that by 2022, ten years from now, annual EV sales are projected to hit 4,580,000.
Tesla is currently at the forefront of an industry that is slated to grow over 37 times are larger in the next decade. Considering that the Model S (highest priced model) will have over 300 miles per charge, competitors EV's [from Ford (F) and Nissan (NSANY.PK)] who have around 100 just won't be able compete.
Another thing that the market fails to recognize is that Tesla has successfully created the first cool electric car brand. The Nissan Leaf (NSANY.PK) and Toyota Prius (TM) are both hideous yet have been massive commercial successes. Recent history has proven that EV's are selling remarkably well despite serious controversy over EV's real bonus to the environment. For its first 3 years of production Tesla has only produced the Roadster, a very high end sports car that retails for over $100,000. This has associated Tesla's brand with both luxury and status no other electric car brand with similar performance can compare to that.
In short, Tesla will look supremely undervalued at current prices in the long term if it can fully execute its business model. With marketing being done the right way, and the brand being built very carefully things are looking bright for Tesla's future.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
