On Jan 2, 2012 I wrote an article for SA. TSLA had fallen to $25 where it had roughly been for 1.5 years. At a time when the stock was considered overvalued, I estimated it would rise to over $140 in under 3 years.
Here is my second price target. TSLA to rise past $1000 in under 10 years, a growth rate of 25% per year. To be more precise, my model has this occurring just after the 7 year mark from today. This article details several key factors in my analysis.
Without a technological breakthrough Tesla will be struggling to justify their current valuation for several years.
Refinement - Tesla is supply constrained by choice. The Model S's acceleration from 0 to 20,000 was a tremendous achievement that can be overshadowed by inflated expectations. The company's attention is now on beating their 25% target gross margin. While this is critical to long term success, it is not glamorous, and could bore investors.
High Valuation - The current valuation already has Model X design excellence and sales priced in. Successfully meeting these goals will not increase company value sufficiently to justify the short term downside risk.
Recall - While there will not be a recall, it is in Elon Musk's nature to perfect his baby. When he does add shielding to the bottom of the car, he'll also offer the upgrade to existing customers. Those people that fear self-esteem will cry "recall". It could mean a stock setback and cost the company real money. At the same time, this epitomizes the commitment to excellence Tesla continues to demonstrate, which is the very reason for its high valuation.
Technology Domination - Many underestimate the value of Tesla's technology. It is NOT replicable by the major car companies, and the advantage will continue to grow.
1) Tesla is a Technology Company. Every design decision they face is new to them, and their goal is to optimize. The extends even to the small details, 17" display or falcon doors. Tesla could prove their technology and sell cars without these. They could focus exclusively on the core details, battery technology, production efficiency, safety, etc, but they don't. They chose to dramatically innovate every chance they get, proving their ability on a regular basis.
2) The major car companies have competed on marginal improvements and marketing for years. They have large staffs of people who don't know how to innovate anywhere near the level of Tesla. Their innovations are generally incremental. Despite Ford's $5.9 Billion DOE loan, and Nissan's $1.4 Billion, they produced on the level of the Ford Focus electric, and Nissan LEAF, proving their inability.
This means even if the game were a stalemate today, no one would stand a chance against Tesla.
And it's not a stalemate. Not even close. A lot has been written about their vastly superior technology, so I won't. It is worth reiterating that their battery technology is fundamentally different, small cells vs. large cells, and there are major companies researching small cell technology that will be useful to Tesla, but not their competition.
Value of the Technology
Game Changing Safety - Right now safety is just a great selling point. What happens when 3-5 years from now, when a good number of Model S's have been on the road and their real world injuries are dramatically lower than competition. Safety is relative; ICEs become considered unsafe; something poor people drive; an unfortunate reality for those who can't afford to value their Lives properly. This creates a dynamic shift in public opinion. The game changing safety is already real, but it has been largely lost in the sea of marketing claims. Society at large has not yet begun to comprehend this now inevitable outcome.
Game Changing Cost Per Mile - The Model S / X are luxury cars. They're expensive, and people are not buying them with the intention of saving money. Sure, the efficiency adds significantly to the value proposition, but it is not the core reason for buying. The Model E or a cars with its powertrain are a different story.
A Model S that retailed for $57,400 has a cost of ownership in the USA of about $31,800 over 5 years (5 year cost of ownership is a close approximation of the true cost of a car to the segment of drivers in the new car market). For BMW's cars the 5 year cost of ownership is roughly equal to MSRP of the car, and their cars are among the lowest in depreciation for ICEs. In other words, the Model S true cost is similar to that of a $31,800 BMW. For calculations http://www.teslarumors.com/Teslanomics-BMW.htmll
The Model E will retail for about $35,000. The savings will be similar. The 5 year cost of ownership will be about $18,825. Compare that to a Chrysler 200 LX Sedan, with a price tag of $18,995 and a 5 year cost of ownership of $30,487. In fact, finding an ICE with a 5 year cost of ownership under $30,000 is not easy. The cost of fuel alone averages about $13,000 for a small sedan. Then add depreciation, maintenance, and repair.
These numbers are for the US where oil prices are low. Extended to 10 years the Tesla advantage grows.
Capitalizing on the technology
Elon has clearly stated his intention to transition the world to electric transportation. Right now they're building and proving the technology. In doing so, they are creating a car company that will remain a large part of their business. It will not be the largest part. The Model E will dominate (be superior in every way) all ICEs at a similar and even much lower price point. As CEO's begin to concede defeat to Tesla in the race for electric car technology, a race which they never really competed in, they will join with Tesla and build the future of the car industry together (It's already begun http://www.reuters.com/article/2013/10/31/autos-daimler-tesla-idUSL1N0IL11N20131031). Eventually they will all follow suit and Tesla will own a piece of nearly every new car being built. A very large piece.
This has been the goal all along.
The value charging stations add to investors, in addition to boosting sales, is that Tesla will collect a royalty every time they sell a powertrain capable of using them.
An investment in Tesla today is a bet on Tesla's ability to produce the Model E at $35-40K profitably and is based on a full understanding of how the game will change if/when they do.
Disclosure: I am long TSLA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.