On June 22nd Tesla (TSLA) is going to begin delivering its newest car, the Model S. The Model S is perhaps one of the most revolutionary vehicles to hit the market in the past decade. It's purely electric, can last up to 300 miles per charge, looks like a fancy BMW and is controlled by a massive touch screen console. This is the future of the auto industry.
As of now the Model S has over 10,000 reservations, and not a single one has even hit the road yet. Tesla is currently projecting sales of 5,000 cars for 2012, with more than double that in reservations, those sales seem fairly secured. Skeptics will tell you that about only 20% of reservations turned into sales for the Nissan Leaf (OTC:NSANF), but that was with a $100 deposit. Tesla's deposit is $5,000, which is a much larger commitment and a testament to how much trust has already been placed within the brand.
Tesla already has 22 company owned retail locations, and is planning to open 4 more this summer. As its retail network continues to expand, reservations will continue to rise along with exposure to new markets.
What makes Tesla unique is the brand. They have successfully created a cool electric car company, this has never been done before. Tesla's main competitors, GM's Volt (GM), Nissan's Leaf, and Toyota's Prius (TM) have successfully created average looking cars with average performance under an average brand, all while selling remarkably well. The Model S is a work of art and lasts way longer than its competition. Nissan has stated the Leaf can only really go 70 miles per charge, while the Model S can go for 300 miles.
I look at Tesla Motors as a highly priced, premium product in a growing niche market. In 2011 sales of EV vehicles were just around 100,000, Trefis has that number rising to over 3,000,000 by 2020 and then doubling again by 2024 to 6,000,000-7,000,000. What makes this particularly interesting is the size and quality of the facility that Tesla has built to manufacture its vehicles. Its new plant has production capabilities of 500,000 vehicles, which is quite a bit more than the 20,000 Tesla is predicting to sell in 2013. This is because Tesla isn't going to stop at the Model S, they are planning to offer a complete set of electric vehicles.
In February of this year Tesla revealed the Model X, a luxury crossover SUV. Despite the fact that it won't be sold until 2014, Tesla received over $40 million in pre-orders for the car within 5 days after it was unveiled. As of Tesla's latest quarterly report over 1,000 Model X reservations had already been tallied. To give you a little more insight on how much hype there was surrounding the launch, 'Model X' was the 3rd most searched term on Google (GOOG) the day it was released.
Now one might assume that Tesla is eventually planning to produce 500,000 of both the Model S and X in the long term, thus the massive facility size, right? Wrong. In a March 19th interview with Fast Company, Tesla CEO Elon Musk detailed his "master plan" for the company. Apparently later this year an electric car for the masses will be announced with a price point hovering around $30k. This is where Tesla will make its money. If it can successfully reach sales targets on both the Model S and X (as Tesla's on track to do) then this "Gen-III" could start production as early as 2016 (Tesla has hinted it will be sometime mid-decade).
The last misguided opinion that shorts have is profitability and valuation. Musk has stated numerous times that Tesla's breakeven point is 8,000 cars per year, that figure is projected to be exceeded by 150% in 2013, before even the Model X or Gen-III go on sale! To outline Tesla's profitability in terms of future production I've outlined what I think future sales will look like the chart below.
Tesla Car Sales Projections
|Year||Model S||Model X||Gen-III||Average Sales Price Per Vehicle||Percentage Of EV Market||Revenue|
All EV market estimates were taken from Trefis.
Although my model predicts a huge sales ramp-up and exceptional growth, my projections are nearly 20% below analyst estimates. Analysts are currently projecting $555 million in revenue for 2012, and $1.66 billion in 2013, well below the $440 million and $1.365 billion shown above.
Now back to profitability. Tesla has publicly stated that it hopes to achieve 25% gross margins for its vehicles. That translates into roughly $2 billion in gross profit in 2019, or over $18 per share. With Tesla currently trading at $29 and my low end projections (shown above) predicting EPS to be well over $10 per share in 7 years, this looks like a 10 bagger from current prices. Another interesting note is that my model assumes Tesla will be producing just 180,000 cars per year by 2019. That is only 36% of its production capabilities. If Tesla were to achieve its maximum production of 500,000 cars by then, revenue would be closer to $20 billion.
Even if we value Tesla at just 2x low-end 2019 sales, then we come out to a share price well over $140. If we take the high estimate for 2019 sales? Then Tesla will be valued well over $350 per share. If Tesla can sell through its cars as fast as they've been piling up reservations, production could ramp up much faster. My model assumes a 5,000 unit production increase in 2014 for the Model S, Tesla hasn't made any comment on 2014 production, but is increasing production in 2013 by 15,000 cars. If Tesla were to do the same in 2014, we would be looking at 35,000 Model S's sold, and over $2.2 billion in revenue (well above projections).
As you can see Tesla has massive upside potential. Even if they are able to control under 10% of the EV market, that would still make today's prices look unbelievably cheap. As reservations continue to pile up, new models are announced, and retail locations grow, Tesla's growth is just getting started.